Swiss chocolate maker Barry Callebaut (BARN.S) reported a 6.8% increase in annual profit for the fiscal year ending in August, as it successfully passed rising cocoa prices onto customers.
Despite this, sales volume remained flat, as high cocoa prices, reaching nearly $12,540 per metric tonne, limited demand.
Barry Callebaut’s cash flow, deeply impacted by elevated costs, stood at a deficit of 2.3 billion Swiss francs, driving the company to borrow 2 billion francs.
Revenue rose by 22.6% to 10.4 billion francs, but concerns linger over how price hikes will affect future demand.
Flat sales amid revenue growth
Barry Callebaut’s chocolate sales volumes were unchanged at 2.279 million tonnes for the year, marginally missing the 2.283 million tonnes forecasted by analysts.
The fourth quarter saw a slight decline of 1.2% in sales volume, largely due to weaker demand within its high-end gourmet division and a temporary production halt at its plant in Mexico.
Despite these setbacks, the company’s revenue increased significantly, reflecting its effective strategy to offset cocoa cost pressures.
Record cocoa prices strain cash flow
Cocoa prices, which nearly doubled over the past 12 months, have weighed heavily on Barry Callebaut’s financials.
The company’s cash flow recorded a negative 2.3 billion francs, leading it to triple its net debt.
In response, Barry Callebaut raised its borrowing by 2 billion francs to support its operations.
This increased debt underscores the pressures that chocolate manufacturers face from cocoa price inflation, with Barry Callebaut closely monitoring demand in response to cost increases.
Market share under threat amid demand challenges
Barry Callebaut acknowledged “significant uncertainty” regarding how sustained cocoa price hikes might impact short-term demand.
J.P. Morgan analysts voiced similar concerns, suggesting that elevated chocolate prices could further weigh on Barry Callebaut’s sales.
Amid these challenges, the company has stated its commitment to defending its market share within a highly competitive sector.
The outlook for 2024 remains cautious, as the chocolate maker navigates both price pressures and shifting consumer preferences.
Temporary setbacks in premium sector
Barry Callebaut’s high-end gourmet unit experienced a dip in sales, partly due to its sensitivity to price changes, as luxury products tend to be more vulnerable to economic shifts.
The company’s operations faced temporary disruption at its Mexican facility, compounding the sales challenges within its premium offerings.
Moving forward, the chocolate giant aims to stabilise its gourmet business while bolstering production capabilities to meet ongoing demand.
Barry Callebaut’s shares rose by 1.7% in pre-market trade at Julius Baer, reflecting investors’ cautious optimism despite the flat sales volumes.
As the company adapts to cocoa-driven cost increases, maintaining its profitability and market position will be central to meeting market expectations.
The coming fiscal year is expected to be challenging, as Barry Callebaut balances financial resilience with consumer pricing sensitivity.
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