Lindt continues to grow but warns of ‘stagnating’ chocolate markets

Lindt group sales in Swiss Francs climbed 6.6% to CHF 1.5bn ($1.5bn), while organic sales growth was up 4.4%.

Net income rose 11.1% to CHF 72.2m ($73.3m) during the period (January 1 to June 30).

Challenging, saturated chocolate markets​

The Lindor maker said in a release: “The biggest challenges facing the company in the first six months of the year were continuously high raw material prices for cocoa beans and cocoa butter, stagnating chocolate markets and generally subdued consumer sentiment.”​

It added that key markets for chocolate, Switzerland and Europe, “are largely saturated.”​

The company's home Swiss market is suffering as consumers continue to shop in neighboring European countries and Lindt’s retail partners are coming under increasing pressure from hard discounters, said Lindt.

Analyst: Lindt will still outperform competitors​

But Jean-Philippe Bertschy, an analyst at Bank Vontobel, told ConfectioneryNews, Lindt, excluding its Russell Stover division, will continue to outperform the market in the premium segment.

Bank Vontobel said Lindt’s organic growth in H1 corresponds to 1.8% volume growth, pointing out Lindt was likely hit by a shorter Easter period. The Bank has maintained its “buy”​ rating.

Bertschy expects the overall global chocolate market will remain flat or slightly negative in volume for the remainder of the year, but forecasts value sales will be up slightly.

Europe and North America​

In Europe, Lindt sales rose 5.7% in H1 to CHF 738.5m ($749.4m) as it reported double-digit growth in the UK, the Nordics, Czech Republic, Russia and Poland as well as good results in Germany and France.

$250 manufacturing investment

Lindt said in its H1 release that it was continuing to invest in its manufacturing capacity with CHF 250m ($253.7m) in investment planned this financial year. It recently opened a $45m plant in Sydney, Australia​​. The company has also recently built a large production line to produce for filled chocolates at its US site in Stratham and has installed a new Lindor machine. A chocolate mass production line has also recently been added in Switzerland.

"Overall development in North America, the world’s biggest chocolate market, was weak, with a decline in sales and volume,” ​said Lindt, which is the premium chocolate market leader in the region with its Lindt, Ghirardelli, and Russell Stover businesses.

The NAFTA region represented 49% of Lindt’s sales in H1.  There organic growth was up just 0.8% to CHF 569.1m ($577,5m). But excluding Russell Stover, the region posted 6.6% organic growth.

Bertschy said in an analyst note: “Lindt is aggressively streamlining Russell Stover product portfolio and discount policy. Last year, RS was able to report flat growth, as the streamlining only started in Q4.”​

Emerging markets and retail ambitions​

Lindt’s ‘Rest of the World’ division posted 10.2% sales growth in H1 to CHF 193.9m ($196.8m), driven by strong performance in Japan, Brazil, Australia and South Africa.

The group’s Global Retail arm, which it has called key to its international expansion​​, continued to grow in H1.

The company plans to open 65 new stores during the 2016 fiscal year, bringing its total retail network to almost 400 stores.

Lindt is aiming to be the global leader in premium chocolate retail by 2020. It faces competition from Ferrero, which recently moved into the segment by acquiring UK company Thorntons.​​

Growth target reaffirmed​

Lindt reaffirmed its outlook of 6% to 8% organic growth for the full fiscal year.

It added that only 40% of its sales tend to come in the first of the year because of chocolate’s seasonality as a gifting item.

The company also said around half of its fixed production, administration and marketing costs have already been booked at the end of June.