Market Data 
Investing.com — Shares of Barry Callebaut (SIX:) jumped on Tuesday after Barclays upgraded the Swiss chocolate manufacturer to “overweight,” citing a promising outlook driven by cocoa price normalization, increased outsourcing opportunities, and substantial progress in its cost-saving initiatives.
At 3:35 am (0735 GMT), Barry Callebaut was trading 6.5% higher at CHF 1,550.
Barclays also revised its price target of CHF 1,800 from CHF 1,450, reflecting increased confidence in the company’s ability to navigate recent challenges and improve profitability.
Over the past year, skyrocketing cocoa prices have placed pressure on Barry Callebaut’s margins, leading to cautious sentiment around the stock.
“Early signs here are encouraging, as according to Michel Arrion, executive director of ICCO, world cocoa production is likely to recover in the 2024/25 year starting in October (see Global cocoa stocks drop, but 2024/25 output seen recovering), which both BARN and Mondelez (NASDAQ:) confirmed at our recent Global Consumer Staples conference this month,” the analysts said.
Additionally, Barry Callebaut has projected customer pricing of mid-single to mid-teen percentage increases for 2025, depending on the cocoa content in various products.
Although some customers have delayed pricing decisions, waiting for greater clarity on cocoa costs, the potential for lower prices could reduce the need for further hikes, relieving pressure on volumes.
Barry Callebaut has already weathered significant price increases in its markets over the past two years, with limited impact on volume—a testament to the low price elasticity in the confectionery sector.
Adding to this is Barry Callebaut’s growing outsourcing business, which Barclays identifies as a significant driver of future growth.
Recently, the company won a major outsourcing contract in North America, which could account for over 2% of its total volume.
This contract win suggests that Barry Callebaut’s outsourcing momentum, which had slowed in recent years, is picking up again.
Moreover, the upcoming European Union Deforestation Regulation (EU DR), set to take effect at the end of 2024, could further drive outsourcing demand as chocolate manufacturers look to mitigate the complexity and costs of compliance.
Barry Callebaut’s investments in systems to manage these regulatory challenges make it well-positioned to benefit, particularly as its competitors may not be as prepared.
Barry Callebaut’s ability to capitalize on outsourcing opportunities is significant, with 60% of the global chocolate market—about 7 million tonnes—still untapped.
Rising demand for specialty products like sugar-free and dairy-free chocolate is also expected to add complexity to supply chains, driving more companies to outsource production to industry experts like Barry Callebaut.
The North American outsourcing deal alone supports the company’s volume outlook, giving it an edge over end-market growth in FY25.
Another factor boosting investor confidence is the company’s steady progress on its cost-saving program, which aims to achieve CHF 250 million in savings by FY27.
Over the past year, Barry Callebaut has made considerable headway, closing three plants in Germany, Malaysia, and Italy, and achieving most of its SKU rationalization targets.
Barclays has raised its cost-saving assumptions by CHF 25 million for FY25-FY27, driving an upward revision in EPS forecasts by 6% for FY26-27 for the stock.
Financially, Barry Callebaut is poised for further improvements, particularly in its cocoa processing operations. The company’s combined ratio—a key profitability metric for cocoa grinding—has improved from 3.6x to 4.6x over the first nine months of FY24.
With a typical profitability threshold of 3x in the cocoa industry, this improvement bodes well for Barry Callebaut’s Global Cocoa business in FY25, contributing an estimated CHF 50 million to EBIT, according to Barclays.
While the outlook is increasingly positive, Barclays did note a few potential risks to its bullish view. Continued elevated cocoa prices could put pressure on BARN’s end markets, leading to a more conservative FY25 outlook.
Additionally, food safety concerns remain a risk; a recent salmonella discovery in Mexico was quickly contained, but repeat incidents could damage the company’s credibility.
Barry Callebaut’s stretched balance sheet, weighed down by restructuring costs and high working capital demands, also limits its margin for error.
Despite these risks, Barclays sees Barry Callebaut as well-positioned to deliver stronger results over the next few years, driven by improved cocoa market conditions, outsourcing momentum, and cost efficiencies.
