Kerry Group has pulled its full-year earnings guidance as the coronavirus pandemic has hit food-service sales, spanning fast-food restaurant chains to contract caterers, even as its consumer foods business benefitted from stockpiling by households in March.
"Since March, the restrictions on movement have significantly impacted customer demand beyond China and across the food-service channel," said chief executive Edmond Scanlon in a trading statement ahead of the group's annual general meeting on Thursday.
“Based on the current restrictions, we expect the impact on second-quarter performance to be much more significant than the first quarter.”
Food-service volumes
Speaking to analysts on a conference call, Mr Scanlon said that food-service sales volumes, which account for almost a third of business in the group's main division, Taste & Nutrition, have fallen by two-thirds in April compared to a year earlier as this area has borne the brunt of international lockdowns.
Still, Mr Scanlon noted food-service sales have bounced back in China as a result of an easing of restrictions in ground zero for the virus outbreak, giving the group “an idea” of how things may play out elsewhere.
Taste & Nutrition sales volumes to food companies selling through the retail channel are up a “good mid-single” digit per cent in April, according to company executives.
Mr Scanlon noted that consumers have reverted during the crisis to how they would have shopped 10-15 years ago, with more people doing “the big shop”, sticking to their purchase lists, spending less time in stores and cutting down on impulse buys.
“There is also a disconnect between what people are buying and consuming,” he said, noting that people had engaged in “panic buying and pantry loading” of long-life foods.
Growth
The group predicted in mid-February that its full-year earnings per share would grow between 5 per cent and 9 per cent for 2020, including an estimated impact in the first quarter to its Chinese business, which has five manufacturing facilities, as a result of the coronavirus. The forecast has now been withdrawn.
The rapid spread of the virus has seen Kerry Group introduce home-working, zoning, segregation and use of protective equipment across its global footprint of 150 manufacturing plants to maintain operations.
First-quarter volume growth in Taste & Nutrition came to 1.2 per cent and would have been 4 per cent, excluding the impact of Covid-19.
Foodservice volumes within the division declined by 0.7 per cent as the impact from restrictions on movement in China extended into a number of other countries in Asia and Europe in the latter part of March.
Cheese boost
The smaller consumer foods division, home to brands including Dairygold, Denny and EasiSingles cheese slices, received a 1.5 per cent boost from consumer stockpiling in some categories when lockdown measures were introduced in March.
Total volumes in the unit declined by 4.8 per cent, reflecting the loss of a major contract with retailer Tesco last year.
The group said it has a “a very strong balance sheet” with net debt at the end of March of €1.9 billion with an average maturity period of 5.7 years, and committed undrawn facilities of €1.1 billion.
"Kerry Group's [first-quarter interim management statement] confirms the relevancy and resilience of its business model against a backdrop of unprecedented change," said Davy analyst Cathal Kenny.
“The group has responded to short-term challenges with cost mitigation initiatives. It remains backboned by a strong financial structure. Unsurprisingly, given the macro uncertainty, management has withdrawn full-year guidance.”
