Kerry Group has issued guidance for its new financial year that factors in a potentially significant decline in earnings from the coronavirus outbreak in China.
The Ireland-based food business and owner of the Richmond sausages brand provided the outlook in conjunction with its full-year results to 31 December, which included an 8.3% increase in adjusted earnings per share on a constant-currency basis, and a gain of 11.4% in reported terms.
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However, London-listed Kerry said the same metric is expected to post an increase of 5% to 9% in the current reporting period, with obvious downside factored in from coronavirus, which erupted in the Chinese city of Wuhan, the capital of Hubei province, late in December and has since spread to around 29 countries. In China, more than 72,000 cases have been reported so far and more than 1,800 deaths.
Kerry commented in its earnings statement today (18 February): “Over the past number of weeks, we have been working with our team in China to manage the ongoing developments relating to the coronavirus. Our first priority remains the safety of our people and their families. Our team in China are taking all appropriate protective measures in our facilities and we are working with the Chinese authorities, our customers and other stakeholders to manage through the situation.
“We have included in our full-year guidance the estimated first-quarter impact on our China business.”
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Elsewhere, group revenue rose 9.6% on a reported basis to EUR7.2bn (US$7.8bn) through December, while trading profit climbed 12.1% to EUR903m. Trading margins were up 30 basis points at 12.5%.
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By GlobalDataWhile Kerry did not provide a specific sales breakdown for China, it said revenues in the Asia Pacific, Middle East and Africa reporting division (APMEA) rose 16% during the year to EUR1.28bn.
Kerry noted how consumer eating habits are changing fast, making it imperative for food manufacturers, including itself, to get to market faster with new product innovations, especially given the rise of challenger brands.
The Dairygold spreads owner added: “Our markets and the end-to-end supply chain are experiencing unprecedented disruption, as consumers are demanding more than ever before, and traditional business models are being challenged as a result. They want great tasting products that nourish their bodies, enhance their lives and are sustainable for the planet.
“New entrants and challenger brands have added significant fragmentation to the marketplace. Key for customers to win in this fast-moving environment is the ability to bring more products to market and to do so quicker.”
Kerry said it will continue to look for M&A opportunities “aligned to our strategic growth priorities”.
The company has made some recent acquisitions, including California-based ingredients business Fleischmann’s Vinegar Co. and Oman-based foodservice supplier AATCO Food Industries. But it has also faced difficulties, most notably with the loss of a ready-made-meals contract with Tesco. It also restructured its consumer foods division last year amid a challenging operating landscape and uncertainties around Brexit.
Commenting on the latest financial results, chief executive Edmond Scanlon said: “We are pleased with the business performance and the strategic development of the group in 2019. Taste & Nutrition delivered good volume growth, particularly against the backdrop of softer market volumes in some developed markets.
“Significant progress was made right across our strategic growth priorities of taste, nutrition, foodservice and developing markets. We successfully integrated a number of strategic acquisitions, expanded our strategic footprint in high-growth developing markets, while further enhancing our industry-leading global integrated solutions portfolio.”
