Barry Callebaut: Nine-Month Revenue in Line, but Volumes Behind; Strategic Update in November Key

Barry Callebaut released its 2023 nine-month trading update. Volumes were down 2.7%, slightly lower than company-compiled consensus (down 2.4%), due to weaker-than-expected demand across regions, with global cocoa surprising on the upside (up 1.6% versus 0.4% for consensus). Revenue in Swiss francs was broadly in line with expectations (up 3.6% versus 3.5% for company-compiled consensus). Performance in the Americas was particularly disappointing with weak trends in volumes continuing (down 4.6% versus down 0.9% for the chocolate confectionery market in the region) and the company calling out the soft market environment due to inflationary pressures in Mexico and gourmet and specialities in North America. Given this challenging market environment, and despite management's commentary "to work toward flat volume growth for full-year 2023" (having previously revised down fiscal 2023 volume growth guidance to flat/modest growth from around 8% implied previously), we expect to trim our fiscal 2023 volume growth numbers to slightly negative from 0.8% currently, but don't expect to materially change our GBX 2,330 fair value estimate for Barry Callebaut. The new CEO will provide a full strategic update with the publication of full-year results on Nov. 1. As a reminder, Barry Callebaut's midterm guidance calls for an average 4%-6% in volume growth and 8%-10% EBIT growth in local currencies with a further improvement in return on invested capital over the following three-year period to fiscal 2026, all broadly in line with our estimates (5% average volume growth and 7% EBIT growth, improving ROIC). Midterm guidance metrics are important drivers of our valuation, hence in case the strategic update results in a downgrade of midterm growth expectations, it would adversely affect our fair value estimate.