At CHF 1,181, Barry Callebaut shares have lost 10% YTD, largely trailing the SMI Mid index (-0.44%). On April 16, the world's leading manufacturer of industrial chocolate warned that its 2026 profits would fall short of expectations. Its H1 free cash flow (FCF) swung from -CHF 2.1bn to +CHF 0.8bn over one year. Same cause, opposite effects: the reversal in cocoa prices.
The cost-plus model caught off guard
Barry Callebaut is not a high-street chocolatier. With Berenberg estimating that it buys about 20% of the world's cocoa, it supplies industrial food producers and artisans. Its model relies on cost-plus pricing. It passes on the cost of cocoa beans, processing and inventory financing fees, and then adds its margin.
During the cocoa price surge, this model demonstrated its ability to more than offset rising raw material costs. Between 2023 and early 2025, the S&P GSCI Cocoa jumped by 400%.
The downturn has turned the tables, however: since its peak, cocoa has lost nearly 70%. Carrying costs are falling, and a portion of the margin is disappearing with them. Berenberg says that the Gourmet division has amplified the shock: expensive inventories, prices that were excessive and finally, faster competitors. Barry Callebaut had to offer discounts to defend its volumes. The closure of the Saint-Hyacinthe plant in Canada added further costs. Berenberg expects 2026 EBIT of CHF 593m, down from CHF 703m in 2025.
The balance sheet absorbs the shock in reverse
However, the impact is not limited to the income statement. What weighs on margins also relieves the balance sheet: cheaper inventories tie up less cash. After two fiscal years in the red, FCF is expected to rebound beyond CHF 2bn in 2026, Berenberg forecasts. This should bring debt back into a more sustainable range.
This financial improvement does not mean that the model is fixed. It is primarily due to a mechanical effect: cheaper stocks release cash. If cocoa prices rise again, the effect could reverse. According to Berenberg, a change of GBP 100 per ton of cocoa can move FCF by CHF 80m. Deleveraging remains contingent on the price of the bean.
A recovery yet to be proven
Cocoa prices also cloud the reading of sales figures. Revenue is expected to drop by 13% in 2026, a seemingly poor signal. In reality, Barry Callebaut is billing its customers for cheaper beans. The true indicator lies elsewhere: volumes are expected to decline by 1% to 3%, compared to 4% to 6% previously.
Profitability remains the key issue. Return on invested capital is lower than before: 7.4% in 2025, compared to over 10% a year earlier. A return to 10% is not expected before 2028. This assumes that "BC Next Level," the cost-saving plan, becomes visible in the accounts and that overcapacity weighs less on pricing.
Investors are finding the bad news hard to swallow, especially since the stock had doubled between the May 2025 lows and the annual peak last February. The shares are still trading at a high premium based on this year's expected earnings. To find potential upside, one must look ahead to 2027, hoping the cocoa market does not act up again.
