Barry Callebaut Changes CEO; Higher Profit, Lower Volumes in H1 but Structural Growth Story Intact

Barry Callebaut released its first-half 2023 results. Volumes were down 2.9%, slightly lower than company-compiled consensus (down 2.2%), due to weaker-than-expected demand in Asia-Pacific and the Americas. Performance in the Americas was particularly disappointing with sequential deterioration in volumes (down 2.4% in the first quarter and down 6.6% in the second versus improving trends across other segments) and the company calling out the soft market environment that led customers to prioritize destocking and continue to delay orders in the second quarter. On the flip side, profitability surprised on the upside (EBIT at CHF 348 million and EBITDA at CHF 467 million versus CHF 322 million and CHF 447 million for consensus, respectively), which was primarily driven by better mix and the global cocoa segment (tailwind from a better cocoa combined ratio). Given this challenging market environment, management revised down fiscal 2023 volume growth guidance to flat/modest growth (from around 8% implied previously) with continued strong operating profitability. Consequently, the company now expects to achieve average volume growth of below 5% and thus won't achieve its top-line midterm guidance (5%-7% volume growth over the fiscal 2021-23 period). Barry Callebaut confirmed midterm guidance for the following three-year period to fiscal 2026 for an average 4%-6% in volume growth and 8%-10% EBIT growth in local currencies with further improvement in return on invested capital, or ROIC, all broadly in line with our estimates (5% average volume growth and 7% EBIT growth, improving ROIC). We don't expect to materially change our CHF 2,400 fair value estimate as we update our model to account for weaker volume guidance. With the shares trading in 5-star territory, we think Barry Callebaut makes a compelling investment case for defensive long-term-oriented investors, and we would advice investors to take advantage of any weakness in the share price.