Business Irish

Wednesday 24 September 2014

Kerry shares rise 
on higher profit and better margins

Published 08/08/2014 | 02:30

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Stan McCarthy

Shares in Kerry Group rose yesterday after the dairy company report higher profits for the first six months of the year after overcoming currency movements and a weak consumer market.

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By the close in Dublin, the stock was up 1.4pc after the firm posted a 65pc increase in profits after tax to €194.7m on revenues of €2.89bn.

The increase was due largely to the stripping out of an exceptional charge last year. At a trading level, Tralee-based Kerry's profits climbed 3pc to €274.7m.

Those figures translated into adjusted earnings per share of 115.2 cent. The interim dividend rose by 12.5pc.

Chief executive Stan McCarthy said he was "pleased".

"[We had] good underlying sales growth and margin improvement, notwithstanding significant adverse currency movements. "We remain confident of delivering 6pc to 10pc growth in adjusted earnings per share in 2014 as previously guided," he added.

Revenues were 1.9pc lower mainly due to a strengthening euro in the past six months, while developed consumer markets remained "subdued".

Growth was driven by Kerry's ingredients and flavours (I&F) business. That division posted trading profit of €251m and contributed more than two thirds of sales. Importantly, margins increased 60bps to 11.7pc.

The US market remains the most important for the I&F business, accounting for €915m in sales - an increase of just under 5pc. In Europe, the Middle East and Africa demand remained strong, said Kerry but the main growth point was in Asia-Pacific. There, sales continued their strong performance, rising 12pc.

While I&F is almost entirely an international business, Kerry's consumer foods arm is based mostly on Ireland and the UK.

Consumer foods continued to struggle, with profits falling only 2.44pc while margins rose by just 10bps.

The branded business in Ireland faced "intense competition from heavily-promoted discounter and private label offerings," said the company.

"Performance in Kerry Foods' branded sausage and cooked meats segments was impacted as a result but the re-launch of Denny Gold Medal sausages and Denny Deli Style cooked meats stabilised brand positions in the second quarter. Dairygold maintained market share in the dairy spreads sector and Cheestrings continues to advance brand development in continental European markets," Kerry added.

Analysts were pleased with the numbers. Jack Gorman of house broker Davy said the company demonstrated "good growth in its key metrics" against a "tough trading and foreign exchange backdrop".

Investec said the results were "broadly slightly below expectations" but noted that full year guidance had been maintained.

The increase in dividend was a particular favourite. Mr McCarthy boosted the payout to to 13.5c per share.

Analysis

It was a case of business as usual for Kerry Group on Thursday. While first-half sales were broadly in line with expectations, revenues were down due to unfavourable currency moves. But that didn't stop investors piling into the shares, boosting the stock price despite the threat of Russian sanctions.

Kerry now does most of its business overseas, with the Irish market of little importance to the bottom line. That being the case, why does Kerry retain its Irish-focused businesses at all? Another firm might pull the plug on its domestic operations to focus on the international.

Kerry won't do this for three reasons. First, for such an 'Irish' company, the market here is an important one in terms of image. 'Irishness' is part of Kerry's brand. It would be hard to reconcile a company that originated with local farmers in the county that bares its name, dropping Ireland altogether.

Second, to do so would conceivably cut back on Kerry Group's access to a reliable milk supply, vital for so many of its ingredients and flavours.

Thirdly, for now at least, is the fact that it seems that a move is simply not yet worth the trouble for this great Irish icon.

That's lucky for Tralee and the country as a whole.

Irish Independent

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