Barry Callebaut Shares Rise After Strong Results

Shares of Barry Callebaut (SIX:BARN) increased following financial results that exceeded expectations despite a slight decline in fourth-quarter volumes.

At 6:29 AM (1129 GMT), Barry Callebaut was trading 3.1% higher at CHF 1,589.

The company reported an adjusted EBIT of CHF 704 million, around 7% above analyst consensus, indicating improved profitability per tonne.

Although volumes were nearly flat year-over-year, the fourth quarter experienced a slight decline of 1.2%, chiefly due to weaker performance in the Food Manufacturer segment.

In contrast, the Gourmet segment saw a growth of 6%, though this marked a normalization from the double-digit growth witnessed in Q3.

The positive surprise stemmed from Barry Callebaut's ability to pass on higher financing costs, yielding an estimated CHF 55 million benefit for the year.

Additionally, the company achieved savings of CHF 18 million for FY24 through its Next Level program, consistent with guidance. The initiative aims to produce savings equating to 70-80% of the run rate by FY25.

Barry Callebaut's FY25 guidance aligns with consensus predictions, suggesting flat group volumes and slight growth in Global Chocolate, mitigating a decline in Global Cocoa.

Barclays analysts note that the firm’s strategy of prioritizing cocoa supply internally amid market constraints contributes significantly.

High cocoa prices might squeeze customers' profit margins, yet the company sees potential growth from outsourcing trends that may rise in the second half of the fiscal year.

Stifel analysts expressed reassurance regarding next year’s guidance, indicating flat volume growth (given uncertain demand after substantial price hikes) and anticipated double-digit adjusted EBIT growth at constant currency.

For FY25, Barry Callebaut anticipates double-digit EBIT growth in constant currency, driven mainly by financing cost pass-through and Next Level savings.

Analysts predict the company's EBIT could reach approximately CHF 750 million, exceeding consensus forecasts before the earnings release. However, foreign currency fluctuations may impact EBIT by CHF 20-25 million.

The company faced a free cash flow outflow of CHF 2.3 billion for the year, which was worse than the CHF 1.7 billion consensus estimate, primarily due to increased margin calls on cocoa hedging.

This is viewed as a timing issue likely to reverse in future periods, and analysts expressed minimal concern over the FCF miss, as the company maintained its expected dividend level.

Barclays analysts assert that while FY24 might show a somewhat weaker exit rate, Barry Callebaut's outlook for both volume and EBIT growth remains positive.

Stifel concludes that, in the long term, the company aims for low to mid-single-digit volume growth to drive mid- to high single-digit EBIT growth, gradually working towards an EBIT margin of 10%, primarily influenced by input costs rather than execution due to the cost-plus model.