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Last week, Kerry Group cut its full-year growth outlook by 2%, and now expects growth to range between 3% and 7% because of currency headwinds resulting from a weaker dollar.
Despite the lower guidance, the first half of the year had revenues up 4.8% to €3.2bn with trading profits up 5.2% to €338m. More importantly, volumes increased 3.8%, driven by 4.2% growth in the ingredients and flavours business.
McCarthy said when analysing Kerry’s performance, the growth in the volume of its business is critical.
“The majority of profits are outside the eurozone, and once these currencies are translated to euro, against the backdrop of a stronger euro, it makes the profits look less.”
He said by 2020, Kerry will have invested more than €200m in its dairy processing facilities in Ireland since 2013. He said these plants play an important role in the business and that dairy was an integral part of the business model.
Milk price outlook
He believes that a price of 32-33c/l is sustainable in the market and is a good average. Commenting on the recent price increases, he said there was still more upside in the near term which was mainly driven by butter.
He said that even though butter consumption has increased, he didn’t think the current price for butter was sustainable.
“The consumer will not pay and there may be a drop-off in demand if prices continue,” according to McCarthy.
However, he reaffirmed his confidence in the long-term fundamentals of dairy around the world given a growing middle class who are spending more on food.
McCarthy said China will become more significant for Kerry in the future. Asia-Pacific revenues increased 14% to €419m with volumes up 10% and this was a big driver of growth in the first six months.
He said key to growing in China (and Asia) was having a physical presence in the market.
He expects the recent return of growth in China to continue and believes that it will continue to import more as its own production has been declining as it is unviable.
On Brexit, he said it is likely “the UK consumer will end up paying more for food in the future”. He said businesses didn’t want chaos or mayhem and felt that common sense will ultimately prevail.
On the US dairy markets, McCarthy believes the US will continue to drive output and therefore exports.
“Low oil prices mean more maize (corn) that was used for ethanol production will switch back to feed,” according to McCarthy.
Coupled with the increasing use of electric cars, he believes this will keep down prices of maize into the future. He said the US will maintain its position in export markets in order to protect its home market.
After 41 years with the company, McCarthy will be replaced by Edmond Scanlon at the end of September. He has 21 years’ experience with Kerry Group and since 2013 he has been CEO of the Asia Pacific region.
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