Chocolate consumption has consistently grown over the past 50 years, despite financial crises and other market disruptions. This resilience has made chocolate a highly attractive and steadily growing category for decades, with no indications that this trend will reverse. Barry Callebaut specializes in the production of high-quality chocolate and cocoa products, positioning itself as a potential beneficiary of the continued growth in chocolate consumption. In this analysis, I will explore whether Barry Callebaut could be a good investment opportunity.
This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.
For full disclosure, I should start by mentioning that at the time of writing this analysis, I do not own any shares in Barry Callebaut. If you would like to see the stocks in my portfolio or copy my portfolio, you can do so on eToro, You can find instructions on how to do this here. I don't own any stocks in competitors of Barry Callebaut either. Thus, I have no personal stake in Barry Callebaut. If you want to purchase shares (or fractional shares) of Barry Callebaut, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started with investing with as little as $50.
The Business
Barry Callebaut is a global leader in the chocolate and cocoa industry, with a rich history spanning over 175 years. Formed in 1996 through the merger of the French company Cacao Barry and the Belgian chocolate producer Callebaut, the company blends a deep heritage with modern innovation. Headquartered in Zurich, Switzerland, Barry Callebaut operates in more than 30 countries, with over 60 production facilities and 25 CHOCOLATE ACADEMY centers worldwide. It serves a diverse range of customers, including multinational food manufacturers, artisanal chocolatiers, pastry chefs, bakeries, and caterers, offering products that range from bulk chocolate to high-end specialty creations. Barry Callebaut’s business spans the entire value chain of chocolate and cocoa production. From sourcing raw cocoa to delivering finished chocolate products, the company ensures high standards of quality, sustainability, and innovation. It operates through three main segments: food manufacturers, which account for 66% of sales volume; cocoa products, contributing 20% of sales volume; and the gourmet and specialties division, which represents 14% of sales volume and focuses on high-margin offerings for artisanal users. This diversified portfolio allows Barry Callebaut to address a wide range of customer needs while driving profitability in premium markets. The company’s moat lies in its integration across the value chain, enabling control over sourcing, production, and delivery. Barry Callebaut is dedicated to innovation, aligning its products with consumer trends and helping customers grow through value-added solutions. Its commitment to service excellence is evident in its goal to provide a seamless customer experience. Furthermore, Barry Callebaut is a leader in sustainability, with an ambitious goal to make sustainable chocolate the norm by 2025. The company focuses on improving farmer livelihoods and securing the future of cocoa supplies, reinforcing its long-term commitment to ethical practices. By combining a deep-rooted heritage, global scale, and a relentless focus on innovation and sustainability, Barry Callebaut has established itself as an indispensable partner to the food industry and a dominant force in the world of chocolate and cocoa products.
Management
The CEO of Barry Callebaut is Peter Feld, who joined the company in 2023. He brings over 30 years of leadership experience in global consumer goods and services companies. Prior to joining Barry Callebaut, Peter Feld served as CEO of Jacobs Holding AG, a global professional investment firm based in Zurich, Switzerland. His extensive career also includes roles as CEO of GfK SE, a leading market research company, and CEO of WMF Group, a premium cookware and professional coffee machine manufacturer. Peter Feld's earlier experience includes senior executive positions at Procter & Gamble, Johnson & Johnson, and Beiersdorf, where he gained significant expertise in the consumer goods industry. He holds a Master's degree in Mechanical Engineering from RWTH Aachen University in Germany. Under Peter Feld’s leadership, Barry Callebaut continues to prioritize sustainable growth and innovation in the chocolate and cocoa industry. Widely regarded as a seasoned and effective leader in the consumer goods and services sector, he has a strong track record of driving transformation and growth. During his time as CEO of GfK SE, he successfully led the company’s transition into an AI-powered analytics and consulting firm. At WMF Group, Peter Feld significantly enhanced the company’s digital offerings and strengthened its global market position. These accomplishments underscore his ability to deliver innovation and success within organizations. When announcing his appointment, Barry Callebaut highlighted Peter Feld’s exceptional track record with international brands and his extensive experience in the food industry, stating that this combination makes him the ideal leader to drive the company’s future success with a focus on sustainable growth. Although Peter Feld has only recently assumed the role of CEO at Barry Callebaut, his impressive track record provides confidence in his ability to lead the company effectively moving forward.
The Numbers
The first metric to examine is the return on invested capital (ROIC). Ideally, we look for a 10-year history with all figures consistently exceeding 10% annually. Barry Callebaut has experienced several years with a ROIC below 10%, but it is encouraging that the company has achieved a ROIC above 10% in the past three years. This is particularly impressive given that cocoa bean prices reached an all-time high in fiscal year 2024. When cocoa prices rise, the company must hold higher inventory levels to maintain operations, which increases the amount of working capital tied up and lowers ROIC. Additionally, investments related to Barry Callebaut's "Next Level" initiative and the current phase of elevated capital expenditures have added further pressure. Management believes that ROIC will increase once cocoa bean prices normalize and the investment phase of the "Next Level" initiative is completed. For these reasons, I find the recent performance encouraging despite the temporary challenges.
The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. I don't have the growth rate from 2014 to 2015 as Finbox only provides data for the past ten years. Barry Callebaut has grown its equity in seven years over the past decade, which is encouraging. Year-over-year growth has decreased slightly in the past two years, but I don’t find this concerning, especially when considering macroeconomic factors such as high cocoa bean prices.
Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Barry Callebaut had consistently delivered positive free cash flow until fiscal year 2024, when there was a significant decline, resulting in negative free cash flow. This drop was primarily due to a sharp increase in cocoa bean prices. When cocoa prices rise, Barry Callebaut must spend significantly more to purchase and hold inventory, as it takes 12 to 18 months for the beans to move from sourcing to being sold as chocolate. This increased the value of its inventory by CHF 2,7 billion, driving up cash requirements. Another contributing factor was the company’s ongoing investments in its “Next Level” program, which is designed to drive long-term growth and operational efficiency. These strategic investments added to cash outflows but are expected to benefit the company in future years. Barry Callebaut has emphasized that the negative free cash flow in 2024 is transitory and largely driven by temporary external factors. These include the sharp rise in cocoa bean prices, the resulting need for higher working capital to manage more expensive inventories, and the upfront costs associated with the “Next Level” investment program. As such, I will not place too much weight on the 2024 numbers. Historically, Barry Callebaut has delivered positive free cash flow, albeit with a low levered free cash flow margin. Additionally, the historical free cash flow yield suggests that the company typically trades at a premium valuation.
Debt
Another important aspect to consider is debt. It is crucial to evaluate whether a business has a manageable level of debt that can be repaid within a three-year period. This is determined by dividing total long-term debt by earnings. After analyzing Barry Callebaut's financial statements, I found that the company has 15,76 years of earnings in debt, which is significantly higher than the three-year threshold. The high debt-to-earnings ratio can be attributed to Barry Callebaut raising additional funds through debt, including issuing bonds totaling over CHF 2 billion during the year, bringing their total long-term debt to CHF 3 billion. At the same time, earnings significantly decreased in fiscal 2024 due to factors such as higher cocoa bean prices. Given these circumstances, the debt situation may not be as concerning as the raw numbers suggest, as the increased debt was used strategically, and the lower earnings are tied to temporary external factors.
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Risks
Commodity prices, particularly cocoa, pose a significant risk for Barry Callebaut due to the company’s heavy reliance on this essential raw material. Over the past year, cocoa prices have experienced extreme volatility, rising by 80%. This surge has driven up the cost of inventory and production, significantly impacting free cash flow and forcing Barry Callebaut to increase its debt levels. The price spike has been driven by extreme weather conditions, crop diseases, and supply disruptions in major producing countries such as Ghana and Côte d’Ivoire. Structural challenges in cocoa farming have further exacerbated the situation. Aging cocoa trees and diseases like swollen shoot have severely impacted crops, while legislation in key producing regions restricts replanting. For example, farmers in Ghana and Côte d’Ivoire are currently prohibited from replanting trees in disease-affected areas, limiting the industry’s ability to stabilize supply, despite ongoing government discussions. These factors create additional uncertainty and financial strain for Barry Callebaut, making commodity price fluctuations a critical risk to the company. This volatility impacts its costs, liquidity, and overall profitability.
Shifting trends pose a significant risk to Barry Callebaut, as the company operates in a dynamic industry where customer and consumer preferences evolve rapidly. These changes can disrupt established market dynamics and challenge the company’s ability to sustain growth. One emerging factor is the increasing use of GLP-1 medications, such as Ozempic and Wegovy, which aid in weight loss by suppressing appetite and cravings, including for high-calorie and indulgent foods like chocolate. The growing adoption of these medications could lead to reduced demand for confectionery products. This trend aligns with broader societal shifts toward healthier lifestyles and dietary preferences, such as reduced sugar consumption, plant-based diets, and lower-calorie options. Environmental concerns and ethical sourcing are also reshaping purchasing decisions. Consumers and customers are increasingly demanding transparency in supply chains and products that align with their values. Failing to meet these expectations could harm Barry Callebaut’s reputation and sales. Societal shifts, including changing lifestyles and values, add another layer of complexity. For example, younger generations often prioritize unique flavor experiences and ethical consumption, trends that require continuous innovation. If Barry Callebaut fails to anticipate or adapt to these evolving preferences, it risks losing relevance and market share.
Regulatory risks are significant for Barry Callebaut due to the complex and evolving legal requirements across multiple jurisdictions. These include compliance with regulations on product safety, environmental standards, labor and human rights, anti-bribery laws, trade sanctions, and supply chain traceability. Failure to comply with these regulations could result in fines, legal penalties, operational disruptions, and reputational damage. For example, the EU Deforestation Regulation (EUDR) mandates stricter supply chain transparency, increasing compliance costs and operational complexity. Similarly, product labeling and safety regulations vary by region, and non-compliance could lead to product recalls or restricted market access. Labor laws in cocoa-producing regions present additional challenges, requiring Barry Callebaut to ensure its suppliers adhere to human rights standards to avoid legal penalties and protect its reputation. Beyond financial and operational risks, regulatory violations could erode customer trust and damage the company’s brand image. Adapting to new regulations like the EUDR is crucial for maintaining market access and competitiveness, but it also adds costs and uncertainties that Barry Callebaut must navigate carefully to sustain its leadership in the chocolate and cocoa industry.
Reasons to invest
Barry Callebaut’s Next Level investment program is a strategic initiative aimed at driving significant long-term growth while improving profitability, efficiency, and customer focus. Representing the largest investment in the company’s history, with CHF 500 million allocated, the program is designed to strengthen Barry Callebaut’s position as the global leader in chocolate and cocoa products. A key focus of the program is bringing the company closer to its customers. This approach enables Barry Callebaut to respond more quickly to market demands and deliver tailored services, enhancing its agility and relevance in an increasingly competitive industry. Additionally, the company is prioritizing digitalization and simplifying its operations to boost efficiency. These efforts are expected to accelerate the time-to-market for new products and foster stronger partnerships with customers. Operational efficiency is another critical component of the initiative. Barry Callebaut aims to save CHF 250 million annually by streamlining operations, optimizing manufacturing processes, and improving supply chain management. These savings are expected to directly support margins and cash flow, with a substantial portion contributing to enhanced profitability. The Next Level program is designed to prepare Barry Callebaut for the next decade of sustainable growth. By adapting to changing market dynamics, meeting customer needs, and improving operational performance, the company is positioning itself to achieve both volume growth and improved financial performance.
The Gourmet segment is a compelling reason to invest in Barry Callebaut due to its strong growth, high-margin potential, and strategic importance within the company’s broader portfolio. This segment focuses on artisanal and professional users of chocolate, such as chocolatiers, pastry chefs, and bakeries, and has consistently demonstrated momentum across geographies and market segments. Barry Callebaut has made significant progress in expanding its Gourmet business, achieving nearly double-digit volume growth at 9.8% and a recurring EBIT increase of almost 13% in fiscal year 2024. This performance underscores the segment’s ability to deliver both strong revenue growth and higher profitability. Additionally, the company’s strategic shift toward scaling its Specialties business has further enhanced margins. An important innovation in the segment is the introduction of a direct-to-customer web shop in Germany. For the first time, Barry Callebaut’s end customers can source and subscribe to products directly, bypassing traditional distributors. This initiative not only simplifies the customer experience but also enables the company to capture additional value within the supply chain, further supporting margins and growth. With its robust performance, strategic initiatives like direct-to-customer sales, and a focus on higher-margin products, the Gourmet segment is well-positioned as a growth engine for Barry Callebaut.
Emerging markets, particularly in Asia, represent a significant growth opportunity for Barry Callebaut and a compelling reason to consider the company as an investment. With 2,5 billion consumers entering the market, the region offers vast, untapped potential for increased chocolate consumption, driven by rising incomes, urbanization, and evolving dietary preferences. Barry Callebaut has made strategic investments in these markets, including appointing new managing directors to ensure a focused and tailored approach to growth. In Asia, the company has already achieved double-digit growth over the past six months, despite challenges such as low consumer sentiment in China. This strong performance underscores the effectiveness of its regional strategy and the resilience of its operations, even in challenging conditions. The company views Asia not only as a source of new consumers but also as an innovation hub, offering opportunities to introduce new product applications and premium offerings. By capturing the growing middle-class and affluent consumer base, Barry Callebaut is positioning itself to lead in this expanding market. The company’s focus on introducing these consumers to the “top end” of the chocolate category aligns with its broader strategy to grow the high-margin Gourmet and Specialties business in emerging regions. As economic conditions stabilize and consumer sentiment improves, particularly in key markets like China, Barry Callebaut is well-positioned to capitalize on the long-term upward trend in chocolate consumption across emerging markets.
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Valuation
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators.
The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 34,58, which is from 2024. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 37,6% in the next five years but 15% is the highest I use. Additionally, I have selected a projected future P/E ratio of 30, which is twice the growth rate. This decision is based on Barry Callebaut's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be CHF 1.037,40. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Barry Callebaut at a price of CHF 518,70 (or lower, obviously) if we use the Margin of Safety price.
The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: Barry Callebaut had a negative operating cash flow in fiscal 2024 due to the elevated cocoa prices. Hence, I'm doing the calculations based on the fiscal 2023 numbers. The operating cash flow last year was 331, and capital expenditures were 212. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 148 in our calculations. The tax provision was 92. We have 5,474 outstanding shares. Hence, the calculation will be as follows: (331 – 148 + 92) / 5,474 x 10 = CHF 583,49 in Ten Cap price.
The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. Barry Callebaut had a negative free cash flow in fiscal year 2024, so I'm making the calculation based on the fiscal year 2023 numbers. With Barry Callebaut's Free Cash Flow Per Share at CHF 21,67 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is CHF 342,08.
Conclusion
I find Barry Callebaut to be an intriguing company because it operates in a resilient industry that has experienced consistent growth over the past 50 years. The company has a strong moat through its integration across the value chain. However, fiscal year 2024 has been challenging for Barry Callebaut, as elevated cocoa prices have negatively impacted ROIC and free cash flow, while also necessitating an increase in debt. Management believes these challenges are transitory. Commodity prices, particularly cocoa, pose a significant risk for Barry Callebaut due to the company’s reliance on this raw material and the recent 80% surge in cocoa prices. Shifting consumer trends also represent a risk, as rapidly evolving preferences - including the adoption of GLP-1 medications that suppress cravings for indulgent foods like chocolate - could reduce demand for its products. Coupled with broader shifts toward healthier, plant-based, and ethically sourced options, Barry Callebaut must continuously innovate to remain relevant and avoid losing market share in an increasingly values-driven and health-conscious market. Regulatory risks are another challenge for Barry Callebaut, given the complex and evolving legal requirements across multiple jurisdictions. These include compliance with product safety, environmental standards, and supply chain transparency regulations, all of which add operational and financial complexity. On the positive side, Barry Callebaut’s Next Level investment program is a strong reason to invest. The CHF 500 million initiative aims to drive long-term growth, profitability, and efficiency. Similarly, the Gourmet segment is another highlight, with nearly double-digit volume growth (9,8%) and a recurring EBIT increase of 13% in fiscal year 2024. This performance underscores its high-margin potential and strategic importance. Innovations like the direct-to-customer web shop and a focus on scaling the Specialties business further enhance profitability, positioning the segment as a key growth driver. Emerging markets, particularly in Asia, present significant growth opportunities for Barry Callebaut, with 2,5 billion potential new consumers and rising demand driven by urbanization and higher incomes. While I appreciate the industry that Barry Callebaut operates in and recognize its growth potential, I am personally uncomfortable with its heavy reliance on external factors beyond its control, such as commodity prices. For this reason, I will not be investing in Barry Callebaut at this time.
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