New targets give investors a taste for Barry Callebaut

By Paolo Laudani and Andrey Sychev

(Reuters) -Barry Callebaut set new medium term targets on Wednesday to boost sales volumes and earnings, lifting shares in the world’s biggest chocolate maker as investors warmed to its new chief executive’s turnaround plan.

CEO Peter Feld, who joined in April from top shareholder Jacobs Holding, is overhauling the group with cost cuts, board changes and investments to try to rebuild investor confidence after several setbacks knocked its shares.

In the year through August, Barry Callebaut’s volumes were hit by a factory shutdown in Belgium due to a salmonella case, along with rising cocoa prices and lower consumer spending as inflation-hit shoppers bought fewer sweet treats.

Its shares have lost 22% of their value this year.

In September, Feld unveiled a strategy for the next two years, including 500 million Swiss francs ($550 billion) in investments and annual cost savings of 250 million francs.

The company, which supplies chocolate for Unilever’s Magnum ice creams and Nestle’s KitKat bars, said 75% of the savings should flow to its bottom line, helping it build towards a 10% operating margin goal after 2026.

Before that, there will be a “24-month transition”, as it creates the platform for growth, it said. The company has said it wants to expand gourmet confectionary, vegan and gluten-free chocolate, as well as the Asia-Pacific market.

“The road will be long and bumpy, given the current environment and the increasing sustainability requirements in the coming years,” Vontobel analyst Jean-Philippe Bertschy said in a research note.

Barry Callebaut plans to pay a dividend of 29 francs per share for the 2022/2023 financial year, and said it would pay out at least this during the transition period.

NEW TARGETS

The Swiss firm expects volumes to grow by a low to mid single-digit percentage from fiscal 2025/2026 onwards, with mid to high single-digit growth in earnings before interest and taxes (EBIT).

It sees flat volumes and EBIT this financial year, followed by modest volume growth and stronger EBIT growth a year after.

It had previously forecast average volume growth of below 5%, and EBIT strongly outperforming that level, in 2023-2026.

“We expect a mildly positive reaction as the new medium-term targets look compelling on EBIT growth,” UBS analyst Joern Iffert said, adding the 2023/2024 guidance implied a mild upside to consensus estimates.

The company’s shares were up 4.7% by 0949 GMT, the top gainers on the pan-European STOXX 600 index and on track for their biggest daily increase since the early days of the COVID pandemic in March 2020.

($1 = 0.9090 Swiss francs)

(Reporting by Paolo Laudani and Andrey Sychev in GdanskEditing by Milla Nissi and Mark Potter)