Uninspiring 2023 Guidance but Superior Volume Growth for Kerry’s Ingredient Business in Q4

Kerry Group KYGA reported fiscal 2022 results with volume up 6.1% and pricing contributing 11.7% at the group level, driven by solid performance in taste and nutrition (8.5% volume growth, 8.7% pricing for the year, and 6.1% volume growth in the fourth quarter) and continued volume and pricing growth in the dairy business (volume of 0.2% and pricing of 36% reflected the significant increases in dairy prices and raw material costs). EBITDA margin was down over 100 basis points, driven by taste and nutrition (down 120 basis points for the segment) with operating leverage, currency, and the impact from acquisitions/disposals only partially offsetting input cost inflationary pressures. Regionally, the group’s growth was robust across markets with volume up in mid/high single digits (across the Asia-Pacific, Middle East, and Africa region, Americas, and Europe, volume was up 5.9%, 6.2%, and 6.1%, respectively), driven by both retail and food-service channels; out-of-home consumption continues to recover through seasonal products and limited-time offerings. Volume growth of 6.1% for taste and nutrition division in the fourth quarter is better than what some of Kerry’s peers in the broader consumer packaged goods and ingredient space have reported so far.

Management introduced 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. The shares appear undervalued.