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Chocolate stocksNot a sweet end to the year for chocolate stocks

Corona blues for chocolate Santa Clauses
Corona blues for chocolate Santa Clausesimago images / MiS

The lockdown in spring was not exactly conducive to the slim line of the Germans. Fear for relatives, stress in the home office: During this time, many people have temporarily silenced worries with sweets. Between April and August 2020, German citizens weighed an average of around one kilo more than in the same period of the previous year. That was the result of a survey by the Robert Koch Institute.

A kilo doesn’t sound like a lot – but it is a statistically significant increase. After the current lockdown, the Germans could bring even more on average. Because while in spring the weather invited you to go for a walk, the winter blues and Christmas are now taking their toll.

At first glance, the chocolate industry benefits from the current situation. There, the pre-Christmas period is one of the busiest times of the year even without corona frustration. So should investors put chocolate manufacturer shares under the Christmas tree? That depends on your return targets and your investment horizon. The companies are not doing as well as one might think.

Lockdowns melt sales

Chocolate stocks are relatively crisis-proof, because the demand for sweets usually remains stable in difficult times. In the financial crisis year of 2008, chocolate consumption even increased, but remained constant in the following year. However, the special nature of the corona crisis with its lockdowns has meant that chocolate companies have found an unexpectedly difficult business environment in the current year. At first the Easter business almost fell through, now the Christmas business threatens to turn into a disaster.

“The manufacturers of seasonal confectionery fear that sales in the Christmas business this year, which is important to them, will lag significantly behind the previous year due to the canceled Christmas markets, the empty inner cities, the lack of gift occasions and the less frequent shopping,” says Carsten Bernroth, Managing Director of the BDSI confectionery association. Cocoa grinding – the most important indicator of the demand for cocoa for chocolate production – fell significantly in the third quarter: by 9.7 percent compared to the same quarter of the previous year.

Chocolate stocks have a hard time recovering

The large chocolate producers on the stock exchange are just as mixed as chocolate sales. Take Lindt and Sprüngli, for example: The Swiss company posted a slump in profits in the first half of the year and the share price plummeted. After a rapid partial recovery in April, the share ran sideways for months, and only since December has the trend been pointing upwards again. Despite the correction in the current year, analysts tend to find the paper too expensive.

Lindt & Spruengli AG share

Lindt & Spruengli AG share chart
Course provider: L&S RTThe situation is similarly bad at Barry Callebaut, one of the world’s largest chocolate producers based in Zurich: The corona crash in spring was followed by only a weak recovery. In November, the company also announced that it would cut its dividend by four francs to 22 francs. Such a step is often the right thing to do in times of crisis, but it annoys investors who hold the stock primarily because of the dividend.

Not only Swiss chocolate companies have to nibble at the pandemic. The shares of the US company Hershey, producer of KitKat and the famous Hershey’s chocolate bars, have not been a pleasure for investors recently either. It has not yet recovered from its March crash, not even the Christmas business let the price rise. Analysts currently rate the share with a neutral “hold”, as does the Barry Callebaut stock. That’s not bad. But a sweet Christmas present looks different.

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