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Swiss chocolate maker Barry Callebaut has cut its profit forecast and warned of the effect of falling cocoa prices, industry overcapacity and supply disruptions, sending its shares down more than 15 per cent.
The Zurich-based group said it now expected earnings before interest and tax to fall by a “mid-teens” percentage in its current financial year, reversing earlier guidance for growth and underscoring the scale of the challenge facing new chief executive Hein Schumacher.
Schumacher, who took over in January with a mandate to rebuild volumes and restore investor confidence after a turbulent few years, said the “unique speed of the [cocoa price] market decrease combined with a competitive overcapacity market, volume declines and supply disruption” had hit profitability. The company said it was taking “short-term action to protect market share and prioritise growth”.
Barry Callebaut, the world’s largest chocolate processor, has been hit by sharp swings in cocoa prices over the past two years.
The company said cocoa-related pricing had “turned negative” as prices fell, meaning it is now charging customers less for chocolate after buying cocoa at higher prices earlier.
Jon Cox, head of European consumer equities at Kepler Cheuvreux, said the latest share price fall was driven by the downgrade to profitability rather than any deterioration in volumes, with the cut to forecasts marking “more of a reset under the new chief executive”.
“People think there is a structural element to the decline,” he added, pointing to longer-term pressures on demand rather than a purely cyclical downturn.
Barry Callebaut also cited supply chain disruption linked to the Iran war, as well as a temporary factory closure in Canada, as additional pressures on performance. It cautioned that its outlook remained subject to further fallout from the war in the Middle East.
The group, which supplies chocolate for products such as Magnum ice creams and Nestlé KitKat bars, said recurring ebit fell 4.2 per cent in the first half to SFr310.9mn ($397mn) in local currencies. Sales volumes fell 6.9 per cent to 1.01mn tonnes, though the company said this was an outperformance versus the broader market.
Analysts said falling cocoa prices had yet to feed through to retail chocolate prices, which remain high and continue to weigh on demand. “It takes time for this cocoa collapse to feed into high street chocolate prices,” said Cox, adding that high street prices were up about 10 per cent compared with a year ago.
Despite the weaker earnings outlook, Barry Callebaut said it expected volumes to recover in the second half of the year and now forecasts a smaller full-year decline of between 1 and 3 per cent, with a return to growth thereafter. Cocoa prices, which have more than halved in recent months, should be “supportive for future market recovery”, it added.
Cox pointed to longer-term risks to demand, including the rise of GLP-1 weight-loss drugs. “In a GLP-1 world, how much will chocolate volumes still grow?” he said, noting that Barry Callebaut’s business has historically relied on high volumes.
The shares had risen more than 55 per cent over the past year before Thursday’s fall but remain well below their post-pandemic highs.
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