Kerry shares jump as it boosts dividend and prices amid ‘market uncertainty’

Kerry Group shares surged to their highest level in three months on Thursday, after the food and ingredients giant reported a jump in operating profit and increased its dividend, even as it dealt with rising prices and “market uncertainty” for the year ahead.

Earnings before interest, depreciation and amortisation (Ebitda) increased 12.9 per cent to €1.2 billion while revenue topped €8.8 billion, the company said in a statement on Thursday. The firm will pay a full year dividend of 104.8 cent per share, up 10.1 per cent on a year earlier.

“We made good strategic progress in the year through development of our innovation platforms, footprint expansion and continued portfolio development,” chief executive Edmond Scanlon said. “While recognising the current market uncertainty, we believe we are strongly positioned to continue to grow our business through this period.”

Kerry shares rose 3.9 per cent to €97.45 in afternoon trading in Dublin. That was the highest level since November 25.

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Kerry is forecasting adjusted earnings per share growth on a constant currency basis of between 3 per cent and 7 per cent for 2023. That would be before any dilution from the potential sale of the firm’s sweet ingredients portfolio, Scanlon said.

“We view Kerry’s operational execution through 2022 as a a real point of difference relative to its peers,” Davy analysts Cathal Kenny and Gary Martin wrote in a research note published after the results. The analysts highlighted volume growth in Kerry’s taste and nutritional business as well as “strengthening” free cash flow.

The “results support our view on model relevancy and the sustainability of above market volume growth at Kerry,” they said, while reiterating their “outperform” rating, the equivalent of a buy.

The revenue growth came in part from a 6 per cent increase in volumes, while the company hiked prices by about 11.7 per cent during the year. Even with the price increases, EBITDA margin shrank to 13.9 per cent from 14.7 per cent a year earlier.

“The overall demand environment remained robust through the year despite the macroeconomic backdrop,” Kerry said. “The cost-of-living crisis has resulted in many consumers looking for relative value options to meet their purchase preferences, depending on their available resources,” it added.

“At the outset of 2023, while market conditions are currently uncertain, Kerry remains strongly positioned for growth ahead of its markets. The group will continue to manage input cost fluctuations with its well-established pricing model,” it added.

“Kerry has once again delivered another resilient set of numbers with a particularly encouraging performance in taste and nutrition volumes,” Goodbody analyst Jason Molins wrote in a research note. Molins also highlighted the company’s free cash flow conversion - a measure of how efficiently the business can convert its sales into free cash.

Kerry shares are trading at about a 30 per cent discount to peers in the speciality ingredients sector such as Germany’s Symrise and Switzerland’s Givuadan at a price to forward earnings ratio of about 19.

“We would expect that delivery against market expectations should lead to a re-rating in the stock,” Molins added.