Kerry Group’s dairy business takes a hit in Q3 as earnings forecast is tweaked

Volumes (-6.2% YTD or -12.1% for Q3) and pricing (-6.5% YTD or -17.6% for Q3) across Dairy Ireland were lower through the period, with softer market supply dynamics and continuing price reductions blamed for the poor performance. This was revealed in the Group’s Q3 2023 interim results published this morning.

Within Dairy Ingredients, volumes reflected softer market supply dynamics with prices continuing to reduce through the period, while growth in Dairy Consumer Products was led by Kerry’s branded cheese ranges and private-label spreads.

The Group’s shares have slid following the announced and are down by around  3.5% at the time of publishing (4pm GMT).

Kerry’s Taste and Nutrition unit recorded volume growth of 1.6% in Q3 and 1.5% in YTD, with meat, snacks and dairy achieving good growth and a strong performance in savory and culinary taste solutions as well as the Tastesense salt and sugar reduction technologies. Business volumes in emerging markets increased by 5.1% driven by strong growth in the Middle East.

Group reported revenue in the first nine months of the year decreased by 4.2%, reflecting business volume growth of 0.4%, pricing of 1.3% and a contribution from acquisitions of 1.1%, more than offset by the effect of disposals of 5.1% and adverse translation currency of 1.9%. Group EBITDA margin increased by 10bps as benefits from cost efficiency initiatives and portfolio developments were partially offset by the mathematical impact of passing through overall input cost inflation.

But due to the dairy business’ Q3 performance, the company expects full earnings guidance to be at the low end of previously stated 1% - 5% constant currency range.

Edmond Scanlon, Chief Executive Officer, said: “We delivered a good overall performance in the period recognising varying conditions across our markets. North America saw good improvement through the third quarter, Europe performed in line with expectations while APMEA continued to deliver strong growth. Our unique positioning in foodservice supported our continued strong growth in the channel.

“We made good strategic progress through the period with further footprint expansion and strategic acquisitions, and given the Group’s strong balance sheet and cash flow, we are also initiating a share buyback programme.

“Taste and Nutrition remains strongly positioned for volume growth and margin expansion while recognising current market conditions, however Dairy Ireland performance continues to be impacted by challenging industry dynamics. Given this context, we expect our constant currency earnings growth to be at the low end of our guidance range.”

Global dairy wholesale prices softened in August except for gains in butter, whole milk powder and cheese in the US, while milk production remained low with weak demand.

Share buyback program and board changes announced

Despite the concerning results, the Group launched a share buyback program of up to €300m of ordinary shares, to commence at the start of November 2023.

There were also changes to the board of directors with the appointments of Dr. Genevieve Berger and Professor Catherine Godson as non-executive directors of the Company with effect from 1 November 2023.

Dr. Berger is a global science leader and during her executive career held roles as the Chief Science Officer at Firmenich International SA as well as the Chief Research & Development Officer and Chief Science Officer at Unilever plc. Dr. Berger is currently a non-executive director of Dassault Systèmes SE and previously served on the boards of Air Liquide SA, Astra Zeneca plc and Smith & Nephew plc.

Professor Godson is the Associate Dean, Research and Innovation at University College Dublin (“UCD”) School of Medicine. She has an international reputation in scientific research gained during a long and successful academic career in the US, Switzerland and at UCD. Professor Godson has a broad knowledge across human health and is a global expert on diabetes as well as cardiovascular and kidney diseases. She currently serves on the Irish Research Council and as a Trustee of Barts Charity, London.