Barry Callebaut Slashes Profit View Due to Cocoa Surplus
Barry Callebaut lowered its profit outlook due to cocoa overcapacity and supply issues. Shares fell 12 percent as the firm expects earnings to drop this year.
The world's largest chocolate manufacturer, Barry Callebaut, has lowered its operating profit forecast for the year, citing a combination of cocoa overcapacity and supply chain disruptions linked to the conflict in Iran. The Switzerland-based group saw its shares tumble 12% in early trading following the announcement, as it warned that earnings would remain under pressure despite an expected rebound in sales volumes during the second half of the fiscal year.
The company, which acts as a primary supplier for major brands such as NESTLE SA-REG's KitKat and Magnum ice cream, now projects its recurring earnings before interest and taxes (EBIT) to fall by a mid-teens percentage in local currencies. This revised outlook contrasts sharply with its previous guidance of low-to-mid single-digit growth. For the first half of the financial year, recurring EBIT dropped by 4.2% in local currencies to 310.9 million Swiss francs.
Chief Executive Officer Hein Schumacher attributed the performance to a rapidly shifting market environment.
The unique speed of the market decrease combined with a competitive overcapacity market, volume declines and supply disruption impacted EBIT performance and adjusted our profitability outlook for the year.
Operational hurdles also included a temporary factory closure in Canada during the first quarter. Analysts from JPMORGAN CHASE & CO suggested in a research note that the downward revision could lead to a 20% decrease in consensus earnings forecasts for the 2025/26 fiscal period.
The cocoa market is currently facing a significant bean surplus due to weak demand and high yields in West Africa. Ghana and Ivory Coast together produce nearly half of the world's cocoa, and the ample supply has caused cocoa futures to drop from their record highs seen earlier in 2024.
Barry Callebaut reported that its sales volume fell 6.9% to 1.01 million metric tons in the six months through February, a figure that aligned with analyst expectations. Looking ahead, the company has adjusted its full-year volume guidance, now expecting a decline of between 1% and 3%, which is a narrower contraction than the mid-single-digit drop previously forecast.
