Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kerry Group PLC (KRYAF, Financial) achieved 3.1% volume growth in its Taste & Nutrition business, driven by strong performance in the foodservice channel.
- The company reported good margin expansion of 130 basis points in H1, with Taste & Nutrition EBITDA margin on track to reach 18% for the full year.
- Kerry Group PLC (KRYAF) upgraded its full-year earnings per share guidance to 7% to 10% growth on a constant currency basis.
- Strong free cash flow generation of EUR445 million with a cash conversion of 131% on an average basis.
- Continued investment in organic development and strategic acquisitions, including the completion of the Lattice enzymes business acquisition.
Negative Points
- Volume growth in the retail channel remains subdued, particularly in Europe due to soft market conditions.
- Pricing was 3% lower, reflecting net overall deflation across the basket of input costs.
- Foreign currency translation was 0.9% adverse due to movements in the US dollar and weakness of some emerging market currencies versus the euro.
- Overall volumes in Dairy Ireland were down 1.9% in the first half, reflecting market supply conditions.
- The company has not baked in an uptick in market conditions or promotional activity impacts into its guidance, indicating uncertainty in market recovery.
Q & A Highlights
Q: Could you please give some more color on what you're expecting from end markets in Taste & Nutrition in the second half? Are you incorporating potential promotional tailwinds into the guidance raise?
A: We haven't baked in an uptick in market conditions. Our guidance is based on current market conditions, and we will see what the uptick in promotional activity brings over the coming months. Regarding foodservice, we believe we have a unique position and excellent coverage across the channel, including emerging leaders and regional players. We are confident about the foodservice opportunity and expect continued strong performance.
Q: Could you give us more color on how you expect the phasing of volume growth in Taste & Nutrition for the remainder of this year versus the 3% in H1?
A: We expect volumes by region to be broadly similar or slightly better in the second half. The Americas will continue to show good growth, Europe will remain relatively soft, and APMEA will deliver strong mid-single-digit volume growth. We haven't baked in a significant improvement in market conditions in the guidance.
Q: How should we be thinking about free cash flow and conversion for the full year, given the strong first-half performance?
A: We expect another year of good cash conversion, similar to the prior year, in the zone of 90% on an average working capital basis. Our strong cash generation and balance sheet strength, along with current market context, support our decision to initiate a further share buyback post the completion of the current program.
Q: Could you give us an update on the operational excellence program and how much more margin you can squeeze out of it?
A: We are pleased with the progress of the program, realizing benefits earlier than expected. We are looking at annualized benefits of EUR70 million by the end of 2025, with approximately EUR45 million realized to date.
Q: Can you share details on how your customer base in local and regional foodservice has been evolving, especially in APMEA?
A: Local and regional players are a key feature of our growth, particularly in emerging markets. We have a broad base of customers and are well-positioned with local and regional players, which underpin our outperformance. Established players are also working hard to drive traffic and innovate their menus.
Q: Could you provide more details on the performance of recent acquisitions and their impact on new markets?
A: We are very pleased with the performance of our acquisitions. For example, the Niacet acquisition has allowed us to combine technologies to provide extra shelf life, reducing costs for customers. Similarly, the Selecta and Lattice enzyme acquisitions have synergistic benefits, enhancing our capabilities and offerings.
Q: How do you see the level of promotional activity and innovation across your customer base compared to pre-COVID levels?
A: It's a bit early to tell the full impact of recent promotional activity. However, we have seen a pickup in innovation within the retail channel, with launches planned for the end of the year and early 2025. Key areas of innovation include health and wellness, new formats, and different taste experiences.
Q: What is your outlook for Taste & Nutrition margins this year and your path towards the midterm target?
A: We are on track for Taste & Nutrition margins of circa 18% for the full year 2024. We plan to achieve EBITDA margins in the 19% to 20% range by 2026, driven by cost-efficiency benefits, operating leverage, and mix benefits.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
