Lindt Earnings: Resilient Volume Development in a Challenging Chocolate Confectionery Market

Wide-moat Lindt & Spruengli reported organic sales growth of 7% for the first half of 2024, primarily driven by mid-single-digit price increases taken to compensate for the higher raw material costs related to cocoa. Despite the substantial price increases implemented this year and on a cumulative basis over the last four years, the volume development remained resilient, with volume/mix growth of 0.9%. This is a good performance for Lindt given the challenging chocolate confectionery market, which is seeing volumes either stagnating or declining depending on the product category and market. Cocoa bean prices remain elevated and have fluctuated between GBP 3,500 and GBP 10,000 per ton over the period, closing at about GBP 7,500 per ton at the end of June 2024--more than double compared with the same period last year. The lofty cocoa price will likely translate into substantial pricing actions continuing well into next year. Management expects this to result in muted, but still marginally positive, volume development in 2024 and 2025, supported by Lindt’s brand strength and consumer unwillingness to forego the small indulgence afforded by premium chocolate. For 2024, the company confirmed its guidance for organic sales growth of 6%-8% and EBIT margin improvement of 20 to 40 basis points. The operating margin improvement is now expected to land closer to the upper end of the range, supported by some positive one-offs. We don’t expect to make any material changes to our CHF 94,000 fair value estimate and view shares as slightly overvalued.