Barry Callebaut: Ad Hoc Release Signals Growth Troubles, at Least in Midterm, and Strategy Reset

Barry Callebaut BARN recently unveiled an ad hoc presentation detailing its revamped strategy and restructuring plan, BC Next Level. This plan necessitates an investment of CHF 500 million over the next two years, with CHF 290 million allocated to operating expenses and CHF 210 million dedicated to net capital investments. The company expects CHF 250 million in annual cost savings by 2026. While the net present value of the restructuring appears promising on paper, there’s a lack of clarity on the impact on top-line growth in the coming years. Another aspect—not explicitly mentioned in the presentation but discussed during the call—is the strategy’s inclusion of stock-keeping unit rationalization, which might result in a tangible impact on short-term volume.

Complicating matters, the recent salmonella outbreak at Barry Callebaut’s Wieze factory has prompted some clients to consider collaborations with competitors. This shift not only casts uncertainty on midterm growth projections but also implies a potential rebase in volume due to the dual challenges of potential client attrition and SKU adjustments. The new CEO will provide a full and detailed strategic update with the publication of full-year results Nov. 1.

Considering the above, we have reduced our fair value estimate to CHF 1,910 per share from CHF 2,150. This is driven by our lower midterm volume growth estimates (to negative 2.1% versus negative 1.3% previously in 2023 and up 2.5% versus up 4.5% previously in 2024) and slower EBIT margin improvements (to 25 basis points from 35 basis points on average) due to lower operating leverage than previously expected. Midterm guidance metrics are important drivers of our valuation, so if the strategic update results in a downgrade of midterm growth expectations, it would adversely affect our fair value estimate.