UPDATE 3-Kerry sees faster profit growth, shares rise

* H1 adj EPS up 7 pct to 67.2 cents vs 65.1 cents avg f'cast

* Sees FY at upper end of earlier guided 160-165c range

* To maintain positive margin momentum, profit growth in '10

* Shares up 2.8 percent

(Adds fresh CEO, analyst quotes on outlook, acquisitions)

By Andras Gergely

DUBLIN, Aug 25 (Reuters) - Food maker Kerry Group Plc posted a 7 percent rise in first-half profit on Tuesday and improved its 2009 earnings growth target, highlighting the sector's strong prospects and a sign of improvement for the Irish economy.

Kerry sells foods ranging from sausages to smoothies but makes more money supplying ingredients and seasonings to others in the Americas, Europe and Asia, helping it to quickly refocus towards cheaper items such as fast food in the recession.

Shares in the company, Ireland's third-largest listed company, rose 2.8 percent by 1130 GMT, as investors applauded the prospect of continuing margin growth and an improved 2009 earnings forecast.

The group said it expected earnings per share at the upper end of the 160 to 165 cent range it had given in February.

"An improving margin picture is being played out across the sector ... the earnings outlook in food manufacturing looks positive," analyst John O'Reilly at brokerage Davy said.

He pointed to Cadbury, Nestle and Danone as recent examples of companies with rising margins, helped by low input prices.

Kerry's revenue dropped by 3.2 percent like-for-like in the first half to 2.27 billion euros ($3.3 billion) but cost savings helped boost adjusted earnings to 67.2 cents per share, 2 cents above the average of three analysts' forecasts.

Kerry said sales of its brands such as Wall's and Richmond sausages and children's snack Cheestrings were growing in the UK, with the dominance of supermarkets' cheaper "own brand" items set to ease in the emerging economic recovery. The Irish market was further from returning to normality but also seen turning a corner, McCarthy said.

"The worst is probably behind us or will be by the end of this year from an Irish perspective on the retail side of our business," Stan McCarthy, Kerry's chief executive, told Reuters.

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Data this month showed retail sales in Ireland fell almost 10 percent in June, the smallest drop so far this year, offering a glimmer of hope for an economy suffering from one of the deepest recessions in the industrialised world.

British retail sales in July rose 0.4 percent on the month, twice as fast as expected.

"The results highlight ... the merit of Kerry's broad geographic, category, customer, technology and product scope in the current environment," Davy's O'Reilly said.

Irish food group Greencore said earlier this month it expected to improve its profitability this year, helped by improved consumer sentiment in Britain.

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Kerry's basic earnings per share in the six months to June declined to 53.5 cents from 60.1 a year ago due to restructuring costs and integrating the newly acquired Irish peer Breeo Foods.

"I can see us doing some more deals this year but nothing huge," McCarthy said, adding he was especially interested in expanding in Asian countries such as India and had 250 million euros or more to spend on acquisitions each year.

Sales at Kerry's ingredients and flavours business dropped by 1 percent on a like-for-like basis to 1.66 billion euros but trading profit rose 4.5 percent to 144 million euros. (Additional reporting by Carmel Crimmins; Editing by Erica Billingham and David Holmes) ($1=.6990 Euro)