Chocolate giant Barry Callebaut jumps 8% after earnings📈

Swiss cocoa-chocolate giant conglomerate Barry Callebaut (BARN.CH) surges almost 9% after firs-half of the fiscal year ended in February, as revenue was up 11% on constant currency basis, due to higher cocoa prices with still no demand-destruction seen on the horizon. Earnings were solid despite hard Q1 and cocoa prices surge, which may pressure company profits in the medium-term. Barry is one of the world-biggest chocolate processor, producing for companies such as Unilever or Nestle. Today we can see one of the strongest sessions in company history, after a brutal 2021-2024 sell-off similar to the 2008 GFC crisis.

Higher cocoa prices without demand destruction = higher revenues

• The Company reported net income of CHF 215.8 million and operating profit (EBIT) of 339.4 million for the first half of fiscal 2023-24 (ended in February 2024), up 0.8% and 7.9% respectively in local currencies. Chocolatier processor saw volumes increase by 0.7%, but sales were much higher. 
• Barry reported mentioned 0.7% YoY increase in sales volume (1.1 million tonnes) in the first six months of its 2023/24 financial year (ended in February). Revenues increased 19.6% YoY in local currencies and 11.1% in CHF (CHF 4.6 billion) while consensus expected just 5.7% increase. It was driven by a significant increase in cocoa prices.
• In the same time, gross was CHF 663.1 million, 8.6% YoY higher in local fx but unfortunately down 0.2% in CHF. Company addressed inflationary environment as a reason of it. Company is on the right way to realize program BC Next Level, which may lower yearly 2024 costs by CHF 250 million.
• Earnings before interest and tax fell 40% in local currencies to CHF 178 million Swiss francs in the six months to the end of February. Analysts were expecting higher EBIT of CHF 266 million. Net profit came in 0.8% higher YoY while gross profit was flat despite inflationary environments, due to cost-plus pricing strategy. Operating profit was up 7.9% but down 2.6% in CHF measure.

Barry Callebaut reiterated previous forecast for the full 2023-24 financial year of stable volumes and flat EBIT margin 'while closely monitoring a highly volatile environment'.

Volumes mostly up (outside the US)

Barry Callebaut reported half-year sales volumes mostly unchanged from a year earlier, in line with its annual guidance for flat volumes. The company doesn't expect any changes in previous expectations, which markets see as a positive fact, looking at cocoa disruptive price action.

• Chocolate volume in Western Europe were higher 2.2% in the first 6 months of financial year (from June to December 2023). Barry sees that consumers shift to private label products and gourmet chocolate.
• Central and Eastern volumes increased 3.5% YoY, due to recovery in food manufacturers in Turkey and South East Europe and strong gourmet chocolate demand.
• Chocolate volumes in Latin America accelerated to 6.2% YoY, mostly in Brazil. On the other hand, in the North America, sales volume declined 1.9% in the first half due to weak consumers. Asia Pacific, Middle East and Africa also witnessed a 0.6% decline.

In general, demand on chocolate looks still very solid with potential to rebound from Asia, as China deflation pressure widens (which is expected by Fitch Ratings), as well as higher readings from US. On the other hand, if cocoa price rally will be prolonged, it may disrupt demand and producers, affecting Barry Callebaut business model (outsourcing processing). Despite lower free cash flow and business, pressures, Vontobel analysts said that "it looks like the organization is digesting the recent negative news flow and embracing the Next Level strategic roadmap". 

Barry Calebaut (BARN.CH), D1 interval

Today, Barry stock market shares rise above SMA100. Major resistance zone is set at 1430 CHF level (SMA200).

Source: xStation5