Callebaut Shuts Factory After Salmonella Detected; Fiscal 2023 Downside Risks, but Long-Term Intact

On June 30, Barry Callebaut stopped producing all chocolate food at its factory in Wieze, Belgium after detecting a batch of salmonella-positive products. The company has confirmed that no chocolate products that were affected by salmonella entered the retail food chain. The Wieze factory is one of Barry Callebaut's largest and accounts for 10% to 15% of total annual volume production (about 300,000-350,000 metric tons per year). As there is still uncertainty about the timing of starting production at the site, we see downside risks to our fiscal 2023 forecasts. Assuming a one-to-one margin drop-through and homogeneous production cadence across the year, we expect a roughly 100-basis-point margin impact for every month the factory remains closed. However, we do not anticipate a negative long-term impact on the company's client relationships and as such, we maintain our wide moat rating and CHF 2,400 fair value estimate for Barry Callebaut.