Kerry Group Earnings: Resilient Volume Growth in Europe and APMEA Seen, With Americas Lagging

Kerry Group reported first-quarter results with volumes up 0.2% and pricing contributing 8.3% at the group level, driven by solid performance in taste and nutrition (1.2% volume growth, 7.2% pricing) and a sharp decline in volumes in the dairy business (volumes down 5.8% and pricing of 14.4% reflecting still significant increases in dairy prices and raw material costs). Taste and nutrition performance was driven by the food service channel (innovation with quick service restaurants and coffee chains on new menu development, seasonal offerings), with the retail channel behind reflecting customers' inventory management in North America. The group's EBITDA margin was down 70 basis points, driven by taste and nutrition (down 80 basis points for the segment) with efficiencies only partially offsetting input cost inflationary pressures. Regionally, apart from Americas (volumes down 1.6%), the group's growth was robust across the rest of the markets with volumes up mid-single digits (across the Asia-Pacific, Middle East and Africa region and Europe, or APMEA, volumes were up 5.2%, and 3.9% respectively), driven by both retail and food service channels (out-of-home consumption continues to recover, through seasonal products and limited time offerings). Management confirmed cautious guidance for fiscal 2023 with adjusted earnings per share growth expected at 3%-7% on a constant-currency basis before an expected 2% dilution in the year from the potential sale of the sweet-ingredients portfolio. We do not expect to materially change our EUR 109 fair value estimate after incorporating these numbers. Shares are undervalued.