Kerry Outpaces Ryanair as Push Rewards Shareholders

Shares in Kerry Group Plc outpaced all its global peers in the past two months, allowing it to overtake low-cost airline Ryanair Holdings Plc as the largest company with a main listing on the Irish Stock Exchange.

Kerry rose 7.4 percent over two days to a record 39 euros on Aug. 10 after raising earnings guidance, giving the company a market value of 6.85 billion euros ($8.5 billion). The company overtook Ryanair on June 26 after the airline said in May that recession and austerity in Europe will make it difficult to match last year’s record results.

Kerry, which has become one of the world’s largest suppliers of ingredients and flavors with customers such as Nestle SA and Pepsico Inc, forecast last week that earnings will grow by 8 percent to 12 percent this year, compared with 7 percent to 10 percent in May. Slower earnings growth in Europe was offset in part by expansion in Asia and the Americas where it has increased its presence through acquisitions.

“We are going through a transformation in terms of truly globalizing the business,” Chief Executive Officer Stan McCarthy, 54, said in an interview at the ISE in Dublin last week. “As we move through that transformation you have a business model that is primed for larger acquisitions.”

The stock gained 17 percent in the last 60 days, more than its 14 largest global food manufacturing competitors including Paris-based Danone S.A. and Sparks, Maryland-based flavors maker McCormick & Co., according to data compiled by Bloomberg.

Ireland-based Glanbia Plc, one of the largest producers of cheddar cheese in the U.S. and Dublin-based Greencore Group Plc, the world’s biggest sandwich maker, have risen 32 percent and 53 percent respectively this year as they acquired U.S. companies.

Stability Search

“People are looking for that stability at the moment and for companies that aren’t sliding downwards,” said James Targett, a London-based analyst at Berenberg Bank, who has a Buy recommendation on Kerry with a target price of 40 euros. “It has all been about revenue synergies and cross-selling, and expansion into new markets” for Kerry.

The Tralee, southwest Ireland-based company has grown from operating one dairy plant in Ireland in 1972 to 150 manufacturing facilities in 25 countries. Last year, the company said it acquired Cargill Inc.’s global flavors business for $230 million, in addition to smaller acquisitions in Argentina, India, South Africa, Australia and Germany.

Any large acquisition would have to be in the company’s ingredients and flavors business, according to McCarthy. Prior to becoming CEO on Jan. 1, 2008, McCarthy was head of Kerry’s ingredients business in the Americas.

The ingredients and flavors division reported a 17 percent rise in first-half profit to 213 million euros. Revenue from business outside of Europe, the Middle East and Africa stood at 40 percent of total sales last year.

Increased investor confidence in Kerry’s long-term growth ambitions has helped the stock this year, said Alex Sloane, a London-based analyst at Societe Generale in a note this week.

Kerry said last week it may spend as much as 300 million euros on acquisitions this year. Kerry can “comfortably” afford an acquisition of 1 billion euros, according to Dublin-based analyst Darren Greenfield at NCB Stockbrokers.

Kerry declined 1 percent to 37.8 euros as of 10:35 a.m. in Dublin today, while Ryanair rose 0.3 percent to 4.082 euros.

“We have a dashboard and we keep an eye on our peer analysis and the market,” McCarthy said, declining to say how much it could spend on a larger purchase. “Our preference is to get through as much as possible this transformation that we are talking about and be better prepared to handle an acquisition when it presents itself.”

(Corrects location of McCormick’s headquarters in fifth paragraph of story published Aug. 17.)
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