"Kerry Group" H1 2026 Earnings Call - Volume Acceleration and Structural Margin Expansion Drive Earnings Growth
Summary
Kerry Group is running hot in the first half of 2026, and the numbers back it up. Volume growth accelerated to 3.5 percent in the second quarter, outpacing end markets across every region and channel. The real story is the margin engine. EBITDA margins expanded 60 basis points, with the Accelerate 2.0 cost program delivering 40 of those points on its own. Management is not relying on price hikes to pad the bottom line. Input costs actually deflated in H1, yet earnings per share still climbed 7.9 percent on a constant currency basis. That is operational leverage working as intended.
The company is also deploying capital with discipline. Free cash flow hit EUR 262 million, supporting a 10 percent dividend increase and EUR 173 million in share buybacks. Net debt sits at EUR 2.4 billion with a manageable 2.0x leverage ratio and nearly six years to maturity. Innovation is the growth catalyst, with Tastesense salt and sugar reduction technologies and botanical extracts driving outperformance in snacks, meat, and beverages. Full-year guidance remains firmly set at 6 to 10 percent constant currency EPS growth, even as management acknowledges a shift from input cost deflation to limited inflation in the second half. The playbook is clear. Scale through innovation, squeeze efficiency from the footprint, and let the balance sheet absorb the volatility.
Key Takeaways
- Volume momentum is accelerating. Group volume grew 3.3% in H1, stepping up from 3.1% in Q1 to 3.5% in Q2 across all three regions and both retail and food service channels.
- Margin expansion is structural. EBITDA margins expanded 60 basis points in H1, with the Accelerate 2.0 footprint optimization program alone contributing 40 basis points of improvement.
- Earnings growth outpaces revenue. Constant currency adjusted EPS rose 7.9% to EUR 2.141, proving that operational leverage and portfolio mix are driving profitability faster than top-line expansion.
- Regional margins are diverging but improving. Europe and APMEA both delivered 80 basis points of margin expansion, while the Americas added 40 basis points to reach 18.9%.
- Innovation pipeline is pricing the future. Growth was heavily concentrated in snacks, meat, dairy, and beverages, fueled by Tastesense salt and sugar reduction technologies, botanicals, and high-protein applications.
- Input cost dynamics are shifting. H1 saw overall input cost deflation and a 1% price reduction, but management signals a pivot to limited inflation in H2, setting the stage for potential pricing power tests.
- Balance sheet remains fortress-like. Net debt stands at EUR 2.4 billion with a net debt to EBITDA ratio of 2.0x and a weighted average maturity of 5.8 years, providing ample runway for strategic deployment.
- Capital allocation is aggressive. Management returned EUR 173 million through share buybacks and raised the interim dividend by 10% to EUR 0.462 per share, signaling confidence in cash generation.
- Cash conversion is tracking ahead of schedule. Free cash flow reached EUR 262 million with a 76% conversion rate. Management targets 80%+ full-year conversion despite working capital investments of EUR 81 million for supply chain resilience.
- Full-year guidance is intact. The company maintains its 6% to 10% constant currency adjusted EPS growth target for 2026, factoring in a 1% to 2% foreign exchange headwind and expecting input costs to transition from deflation to limited inflation.
Full Transcript
Moderator: Good morning, welcome to our 2026 half year results. I’d like to start with a quick logistics update this morning, as we’re conscious it’s a busy period of earnings releases. As usual, our CEO, Edmond Scanlon, and our CFO, Marguerite Larkin, will take you through our H1 results presentation. We have also today released our 2030 financial targets. A separate webcast with their prepared remarks is available on our website. At 8:30 A.M. today, we will host our analyst Q&A call, which will cover both our half year results and our 2030 financial targets. Before we begin, please take note of the disclaimer on the H1 presentation regarding forward-looking statements. I’ll now hand over to Edmond.
Edmond Scanlon, CEO, Kerry Group: Thanks, William. Good morning, everyone. Beginning with Slide four and the summary overview of H1 2026. We’re pleased to report a strong performance in the first half, reflecting a step up in volume growth in the second quarter, combined with continued strong margin expansion, driving high single digit constant currency adjusted EPS growth. Firstly, on revenue, we delivered 3.3% volume growth in the half, which was well ahead of end market and channel growth and reflected an acceleration in volume growth from 3.1% in Q1 to 3.5% in Q2. This increase in growth was broad based across each of our three regions and also across both the retail and food service channels. Growth was led by a strong performance in the food service channel with a range of new menu innovations, seasonal launches, and cost reduction solutions.
Growth in the retail channel was supported by continued product renovation activity and innovation in high growth areas across a range of customers. On EBITDA margins, we delivered margin expansion of 60 basis points in H1 with margin progression across all three regions. This was driven by Accelerate 2.0, net price, operating leverage, and portfolio mix benefits. This volume growth and margin expansion we achieved in the first half supported our constant currency adjusted earnings per share growth of 7.9%. From a strategic perspective, we continue to evolve our business through targeted capital investments and portfolio development activity. Today, we’re excited to share our updated financial targets. In the presentation webcast, which is available on our website, we’re outlining the key dynamics in our industry right now and the key drivers of our business performance. Moving next to the H1 business overview on Slide five.
Volume growth in the first half represented a strong market outperformance. Volume growth across our End Use Markets was led by snacks, meat, dairy, and beverage EUMs. This was supported by good growth across a broad range of taste and biotechnology solutions, including Tastesense salt and sugar reduction technologies, botanicals, natural extracts, taste solutions for high protein applications, enzymes, and natural preservation solutions. In emerging markets, we had volume growth of 5% led by good performances in the Middle East, Africa and LATAM. Turning next to the performance by region and starting with the Americas on Slide six, where we delivered continued strong performance. Reported revenue for the region was EUR 1.8 billion, with volume growth of 3.7% in H1 and 3.9% in Q2. EBITDA margins for the region increased by 40 basis points to 18.9%, driven by Accelerate 2.0, operating leverage, and product mix.
In North America, we had strong growth in snacks through innovations and renovations utilizing Kerry’s range of savory taste profiles and Tastesense salt reduction technologies, as well as new innovations focused on delivering science-backed health and wellness benefits. Growth in meat was driven by innovations with new signature taste profiles and natural preservation systems. While beverage had good performances in the refreshing and nutritional beverage categories through botanicals, natural extracts, and coffee-based solutions. Across our channels, we had a good performance in retail, supported by innovation and renovation activity across both customer and retailer brands, with food service continuing to strongly outperform traffic in the channel. Within LATAM, strong growth was achieved in Mexico across the snacks and beverage end markets in particular, and business developments in the region included beverage taste capacity and capability enhancements in North America and progression of our taste footprint expansion in Mexico.
Moving to Europe on slide seven, where the volume performance reflected growth across the retail and food service channels. Reported revenue for the region was EUR 687 million, with volume growth of 0.5% in H1 and 0.6% in Q2. On margins, we delivered strong EBITDA margin expansion of 80 basis points. Looking at our end use markets, volume growth in beverage was led by refreshing beverage and the performance of low/no alcohol solutions through integrated taste, botanicals, and Tastesense sugar reduction technologies. While performance in dairy was driven by taste and protein masking solutions. Across our channels, retail growth was led by the performance of snacks with growth in food service driven by refreshing beverage innovations. And business investments in the region included expansion of our ProActive Health capacity and capabilities in Spain.
Turning to APMEA on slide eight, where performance in the region was led by volume growth in the Middle East and Africa, with China returning to growth and a solid performance in Southeast Asia. Reported revenue for the region increased to EUR 831 million, led by volume growth of 4.9% in H1 and 5.2% in Q2. On margins, we had EBITDA margin expansion of 80 basis points for the region in H1. Across our end markets, growth was led by dairy through enzymes and dairy taste. Meat also had good growth, while snacks growth was driven by the continued strong performance of savory taste solutions. Within our channels, retail growth was led by good performance in taste, with food service growth led by performance with leading regional coffee chains and QSRs. Finally, business developments in the region included commencing footprint expansion in Türkiye and capacity expansion in the Middle East.
With that, I’ll hand you over to Marguerite for the financial review.
Marguerite Larkin, CFO, Kerry Group: Thanks, Edmond, and good morning, everyone. Turning to slide 10 and the financial overview for the first half of the year. Revenue was EUR 3.3 billion with volume growth of 3.3%. EBITDA increased to EUR 558 million, reflecting 5.8% organic growth. We delivered strong EBITDA margin expansion of 60 basis points. Adjusted earnings per share of EUR 2.141 was up 7.9% in constant currency and 2.3% in reported currency. Return on capital employed of 10.5% reflects a currency headwind of 30 basis points and underlying progression of 10 basis points versus the prior year. Free cash flow was EUR 262 million, representing average cash conversion of 76%. Turning to our group revenue bridge on Slide 11. Volume growth was 3.3%, as I mentioned. Pricing was 1% lower, with overall input cost deflation in the first half.
The organic growth we delivered in the first half was more than offset by adverse translation currency of 4.8%, given the significant movement in the U.S. dollar versus the EUR. Disposals net of acquisitions had a net impact of 1.1%, which are enabling the execution of our Accelerate 2.0 footprint optimization strategy. Turning now to the margin bridge on slide 12. EBITDA was EUR 558 million, with strong EBITDA margin expansion of 60 basis points. Looking at the key moving parts. Firstly, operating leverage and portfolio mix contributed a 10 basis points improvement. Net price was favorable 20 basis points in the period. Our Accelerate 2.0 program is well on track and delivered 40 basis points of EBITDA margin expansion in the period, led by progress in footprint optimization in both North America and Europe.
The expansion and deployment of our digital initiatives to drive efficiencies continued across our manufacturing operations, commercial enablement activities, and global business services. Foreign currency was a headwind of 20 basis points, principally due to the movement in the U.S. dollar versus the EUR just mentioned. Acquisitions and disposals contributed a positive 10 basis points. Overall, we are pleased with our margin progression in the period and remain on track for strong margin expansion in the full year. Moving now to free cash flow on slide 13. We generated free cash flow in the period of EUR 262 million, reflecting 76% average cash conversion on earnings, with cash conversion of 85% based on the working capital movement between balance sheet dates. Looking at the component parts for H1. Firstly, EBITDA increased to EUR 558 million.
Average working capital represented an investment of EUR 81 million, aligned to the growth and business development, as well as increased investment in inventories to mitigate supply chain disruption risk given recent geopolitical events. Finance costs of EUR 29 million, with the increase year-on-year reflecting the timing of bond interest payments in the prior year. Increased capital expenditure of EUR 145 million was reflective of phasing of various strategic capital investments across each of our regions, as Edmond mentioned. Overall, we remain well on track to deliver cash conversion of 80%+ in the full year across both of the cash conversion metrics I just mentioned. On our debt profile and credit metrics on slide 14, net debt at the end of June was EUR 2.4 billion, with a weighted average maturity of 5.8 years.
Our credit metrics are strong, with a net debt to EBITDA ratio of two times, we have a very strong balance sheet, which will continue to support the further development of our business. Finally, to cover off a number of other financial matters on slide 15. Finance costs of EUR 30 million were similar to the prior year. Net non-trading items were EUR 32 million, reflecting the good progress of the Accelerate 2.0 program. On input costs, we had overall deflation in H1, which will turn to limited inflation in H2. On capital returns, we have announced an interim dividend of EUR 0.462 per share, a year-on-year increase of 10%. On share buybacks, we repurchased EUR 173 million worth of shares during the period. On currency, we now expect a foreign currency translation headwind of 1%-2% on adjusted earnings per share in the full year.
To summarize, we delivered a strong financial performance in the first half, driven by volume growth well ahead of end markets and continued EBITDA margin expansion. With that, I’ll pass you back to Edmond.
Edmond Scanlon, CEO, Kerry Group: Thanks, Marguerite. Moving to our full year outlook on slide 17. Our strong end market volume outperformance in the first half of the year demonstrates the strength of our strategic positioning across our markets, channels, and customer base. We will continue to develop our business while supporting our customers as their key innovation and renovation partner. Looking to the remainder of the year, while recognizing the current market uncertainty, we remain strongly positioned for volume growth and margin expansion, underpinned by a good innovation pipeline. We are maintaining our full year adjusted earnings per share guidance of 6%-10% constant currency growth. Thank you
