Chocolate Maker Lindt Needs These Ingredients to Lift the Stock
Swiss chocolate maker Lindt & Sprüengli has left a bitter taste in investors’ mouths in the past few months.
The Zurich-based confectioner, famous for its bunnies wrapped in golden foil and Lindor truffle balls, said in January that labor and supply chain issues at its Russell Stover unit in the U.S. would hurt group sales growth in 2022.
This news hit the stock (ticker: LISN.Switzerland), which was at a peak of 123,433 Swiss francs ($126,827) in December. The shares have tumbled 15.74%, to a recent CHF 104,000. The slump came after Lindt’s strong performance in 2021, when consumers bought affordable treats for themselves and gave luxury chocolates to friends they could not meet during the pandemic.
But the shares could be nearing the bottom, and are worth a look for brave investors. In March, Lindt upgraded its midterm sales growth guidance to 6%-8% from the previous range of 5%-7%.
The renewed confidence in growth comes as the premium sector outperforms other parts of the overall chocolate market, which is forecast to expand an average 2.4% annually over the next three years, according to Stifel analyst Pascal Boll, extrapolating Euromonitor data. But Boll forecasts Lindt, with its focus on premium chocolate, will grow an average 7.4% annually over the same period.
Lindt can benefit from some inflationary headwinds. The company is a market leader in many regions and its upscale brands give it flexibility to raise prices.
“We believe moderate inflation (not the very strong price dynamic we currently see) can benefit Lindt in the next years, as the company should be able to raise prices slightly beyond the cost impact—supporting the margin,” Boll says.
In 2021, annual net income rose 53.2% to CHF 490.5 million, up from CHF 320 million francs in 2020. Sales in 2021 were CHF 4.6 billion, 15% above the prior year’s total.
Lindt—which opened its first shop in 1845 and has more than 500 around the world—operates 11 production sites and employs more than 14,000. The big confectioner has a market value of CHF 14.2 billion. It trades at an expensive multiple of 44.1 times this year’s expected earnings.
Adalbert Lechner will replace Chief Executive Officer Dieter Weisskopf, who is retiring by the end of the year after six years at the helm. Ernst Tanner, executive chairman of the board, said that, under Weisskopf, Lindt’s balance sheet and income statement “have been further strengthened, and regions with faster growth have been expanded.”
The business has gained market share in new markets such as Brazil, China, and Japan, as well as in its more traditional markets such as Germany. Another area of growth is North America, which accounted for about 37% of 2021 group sales. Lindt didn’t trim promotional spending during the pandemic, and that should help the company increase market share.
Research by analysts at Bernstein showed that Lindt’s growth momentum from the pandemic has continued, even as life returns to some normality. Analyst Bruno Monteyne said that Americans in 2017 consumed only 50% to 60% as much chocolate as Europeans, based on a kilograms-per-capita basis.
Data from Euromonitor and Stifel Research show that Lindt has increased its market share in the U.S. to 8% from just over 4% in 2011, compared with fairly flat growth over the same period for the general confectionery market.
That’s good news for investors.
“This seems a perfect moment to get exposure again to Lindt,” Monteyne said in a note about the stock.