Kerry feeling the price pressure but meets forecasts

Kerry, which has a factory in Ossett making butter and spreads, reported a 10 per cent increase in first-half earnings and said it is on target for full-year earnings growth of 8-12 per cent as commodity price inflation eases and revenues rise.

Like-for-like first half revenues rose 8.4 per cent to £2.3m.

Cathal Kenny, an analyst with Davy stockbrokers, said: “It is a very, very robust performance considering the international economic backdrop, all areas performing strongly.

“The margins are tighter, but they are investing in the business.”

Growth in commodity prices is set to ease to seven per cent in the second half from 11 per cent in the first half, Kerry said.

Full-year revenue will be close to a consensus forecast £4.6bn or “a tick higher”, said chief financial officer Brian Mehigan.

While consumer sentiment remained weak across all markets, Kerry is hopeful of an improvement next year.

“There is a lot of noise in developed markets, putting a bit of a dampener on confidence. It looks like that will continue in second half but maybe ease next year,” said Mr Mehigan.

Margins for unbranded consumer foods were tighter as retailers struggled to pass on cost rises to consumers, he said.

The company earned about two-thirds of its revenues last year from its ingredients and flavours business.

The remainder came from its consumer foods business, which include Wall’s sausages, Homepride flour and Cheesestrings snacks.

Kerry’s focus on exports has allowed it to escape the broader collapse of the Irish equity market, which has lost more than three-quarters of its value since peaking in 2007.

Currency losses will be a significant drag on earnings over the whole year, cutting a couple of per cent from earnings per share, Mr Mehigan said.

Kerry’s talks to buy the US agribusiness firm Cargill’s flavours unit remain on track, Mr Mehigan said.

He added that a “busy pipeline of acquisitions” will cost the company more than the estimated free cash flow of £218m for the year.

Analyst Iain Simpson at Royal Bank of Scotland reiterated his ‘buy’ recommendation on the stock.

“Kerry’s share price had declined broadly in line with the market in recent weeks, whereas we feel that Kerry’s earnings resilience would have justified outperformance,” he said.

“We feel the market may take some comfort from the underlying strength of these numbers.”