Global ingredients and food group Kerry’s provisional results for the year ended December 31 2014, published last month, showed a pretty solid performance, with the exception of its food business, which suffered a fall in sales.
Kerry Group reported adjusted earnings per share up 8.1% to 278.9 cents on revenues of 5.76bn (£4.25bn), reflecting 2.4% volume growth but a 1.4% decrease in revenue. Its ingredients and flavours businesses were worth 4.3bn (£3.17bn), representing a 3.4% increase in volume sales. But its consumer foods saw a -0.7% dip to 1.5bn (£1.11bn), which management attributed to difficult market conditions.
“We recorded another year of good growth, business margin expansion and an 8.1% increase in adjusted earnings per share in 2014,” said Kerry Group chief executive Stan McCarthy. “The consumer environment across developed and developing markets is changing rapidly but Kerry is well positioned to capitalise on global growth opportunities. We expect to achieve another year of good growth in 2015.”
McCarthy noted that changing consumer demographics and shopping behaviour were driving a “paradigm shift” in food and beverage consumption trends, impacting industry, retail and foodservice developments. In particular, increased urbanisation, millennial growth and life-stage needs have continued to increase demands for innovation to meet convenience, snacking, functionality and health/wellness trends.
Demand for clean-label, enhanced nutrition, natural, ‘free-from’ – especially gluten-free – and wider flavour profiles, provided opportunities for Kerry’s taste, nutritional and functional ingredient technologies.
“While showing early signs of recovery, increased fragmentation and polarisation in the Irish and UK consumer foods markets contributed to increased competitiveness,” said McCarthy. “Kerry performed satisfactorily against this background whilst continuing to progress its business repositioning strategies.”
Kerry’s expenditure on research and development increased to 197M (£143M) against 186M (£137M) in 2013. Establishment of the Kerry Global Technology & Innovation Centre in Ireland was said to be on schedule to be fully operational by mid-year 2015. This development will also include the Group’s Global Centre of Excellence for Nutrition. Net capital expenditure in 2014 amounted to 257M (£190M), up 46% on 2013.
Ian Hunter, an analyst with Investec, issued a ‘sell’ recommendation on Kerry’s stock, given that its shares were trading at 21.1x its pre-adjusted estimated earnings for the 2015 financial year.
“We continue to see the valuation as stretched and retain our sell,” remarked Hunter.