Kerry Group has said it will “take time” to get its consumer foods division back to where it should be after the unit saw sales and earnings fall in the first half of the year.
The Irish food manufacturer this morning (8 August) released its first-half results, revealing an increase in both group sales and profits. In the firm’s consumer foods division, however, sales fell 5.8% to EUR830m, leading to a 1.8% drop in trading profit to EUR64m.
Kerry said economic and fiscal pressures continued to impact consumer confidence in the Irish and UK consumer foods markets. As a result conditions in both markets remained “highly competitive” during the first half with shoppers continuing to respond to promotions, pricing and value offerings.
Speaking on the firm’s earnings call today, chief executive Stan McCarthy said the rationalisation programme Kerry has been undertaking across the business, contributed “significantly” to the decline in revenues.
The group has been undertaking a series of restructuring measures, including the rationalisation of manufacturing sites in the Americas and Europe. It has closed a number of facilities over the court of the last year and has been reviewing its distribution business in the UK and Ireland. It is in the UK and Ireland that McCarthy said Kerry had “lost focus” on its brands.
“Obviously consumer confidence has been affected … shopping habits have continued to respond to the change in the economic environment and with the levels of propositions which have not abated, we have to remain competitive from that perspective.”
McCarthy said its dairy spreads division, where it performs in the private label sector in the UK, had been “high affected” by the promotional environment, and its frozen meals division by the horsemeat scandal.
The performance of its consumer foods division, the chief executive said, will “take time to get back to where it should be”. He added: “There is more work to be done.”
McCarthy said the rationalisation programme and its innovation pipeline means the company is in “a better position to have a better handle on our promotional activity, which has been difficult for us over the last few years”.
Goodbody Stockbrokers analyst Liam Igoe pointed to Kerry’s issues in its consumer foods division but highlighted areas of growth.
“Ongoing rationalisation was especially notable in the foods division with “rationalised” volume losses of -5.3% in H1 (versus -3.8% for the group overall) resulting from low margin business being discontinued. The sliced meats category in Ireland continues to be impacted by the weak consumer backdrop while in the UK the frozen ready meals business remains out of favour post the Q1 horsemeat scandal. Elsewhere, branded sausages and rashers saw growth.”
Looking ahead, however, McCarthy remains confident of achieving full-year growth targets for the full year and delivering 7% to 11% growth in adjusted earnings per share to a range of 250 to 260 cent per share.
“When we look at the outlook for 2013, the group’s businesses are aligned for the market opportunities that are relevant to us. We have a very good innovation pipeline and our focus is around value added growth. In developing markets we know how important this is … our focus is on our core brands, businesses for today’s business place. We are confident sticking with our guidance, even against the currency headwinds.”