{"id":37581,"date":"2023-07-19T04:58:38","date_gmt":"2023-07-19T08:58:38","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/lindt-sprungli-watching-sales-volume-and-fcf-in-upcoming-earnings-otcmktsldsvf\/"},"modified":"2023-07-19T04:58:40","modified_gmt":"2023-07-19T08:58:40","slug":"lindt-sprungli-watching-sales-volume-and-fcf-in-upcoming-earnings-otcmktsldsvf","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=37581","title":{"rendered":"Lindt & Spr\u00fcngli: Watching Sales Volume And FCF In Upcoming Earnings (OTCMKTS:LDSVF)"},"content":{"rendered":"
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Investment Thesis: I expect Lindt & Spr\u00fcngli (OTCPK:LDSVF) to continue to see upside from here, on the basis of continued growth in free cash flow and organic sales.<\/p>\n

In a previous article back in December, I made the argument that Lindt & Spr\u00fcngli had seen encouraging sales growth to date, but cost inflation and a rise in cocoa prices may make investors apprehensive of the stock.<\/span><\/p>\n

Since then, the stock has ascended to a level of 12529.40 at the time of writing:<\/p>\n

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\"TradingView\"<\/span>
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TradingView<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The purpose of this article is to elaborate on why I currently take a bullish view on Lindt & Spr\u00fcngli, and what I will be keeping my eye on when half-year results are released later this month.<\/p>\n

Performance<\/h2>\n

When looking at organic sales growth for Lindt & Spr\u00fcngli on a longer-term basis, we can see that organic sales growth (%) has been particularly high for 2021 and 2022.<\/span><\/p>\n

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\"Lindt<\/span>
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Lindt & Spr\u00fcngli: Financial Year 2022 Results<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

While some of this growth can be attributed to a bounce back from the decline that we saw during 2020 as a result of COVID-19, as well as the result of price increases due to inflation – the fact that organic growth has remained substantially above that of previous years has been encouraging and indicates that while volume growth may have been more modest – demand has not fallen excessively as a result of price increases and overall growth is still on an upward trajectory.<\/p>\n

Additionally, we can see that in spite of higher inventories – free cash flow has continued to show growth over the past five years:<\/p>\n

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\"Lindt<\/span>
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Lindt & Spr\u00fcngli: Financial Year 2022 Results<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Taking sales growth and free cash flow into consideration – I take the view that Lindt & Spr\u00fcngli has continued to perform well despite inflationary pressures.<\/p>\n

Upcoming Half-Year Earnings: What I Will Be Paying Attention To<\/h2>\n

When considering upcoming half-year results, there are a number of factors that I will be looking for to determine the extent to which the stock can continue rising from here.<\/p>\n

Firstly, I will be paying particular attention as to whether volume will account for a greater portion of organic growth going forward. As we have seen for the full-year 2022 – only 2.6%<\/strong> of growth came from volume while 8.2%<\/strong> came from price\/mix.<\/p>\n

To put these figures into a wider context, here are the contributions of both volume and price\/mix to organic growth in previous years:<\/p>\n

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\"Figures<\/picture>
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Figures sourced from historical Lindt & Spr\u00fcngli full-year results presentations. Heatmap generated by author using Python’s seaborn library.<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

We can see that at 8.2%, price growth is higher than that of the previous nine years – while volume growth of 2.6% is among the lowest in the last ten years, with only 2013 and 2020 being lower.<\/p>\n

Excluding 2020 due to COVID, volume saw average growth of 4.35% over the period.<\/p>\n

Taking the above into consideration, I take the view that the company should show at least a 4%<\/strong> growth in volume in upcoming half-year results to ensure further organic growth going forward. The main risk for Lindt & Spr\u00fcngli at this point is that price growth starts to plateau, but volume does not rise in response – leading to lower organic growth overall.<\/p>\n

Moreover, I will also be looking for evidence that net debt for Lindt & Spr\u00fcngli will start to decrease in upcoming half-year results.<\/p>\n

We previously saw that net debt for 2022 had increased to CHF 571 million – driven in large part by the debt incurred as a result of share buybacks:<\/p>\n

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\"Lindt<\/span>
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Lindt & Spr\u00fcngli: Financial Year 2022 Results<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

We can see that net debt now stands at a five-year high – with the same being significantly below current levels in the previous three years.<\/p>\n

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\"Figures<\/span>
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Figures sourced from historical Lindt & Spr\u00fcngli Financial Results. Graph generated by author.<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

According to the company, the share buyback started in August 2022 and is set to last until July 2024 at the latest. In this regard, while there is a possibility that net debt could stand to rise further in the upcoming half-year results – I will be looking to see if Lindt & Spr\u00fcngli has the capacity to significantly bolster free cash flow further so as to offset a potentially higher debt load incurred from further share buybacks. Given the strong free cash flow generation that we have seen to date – I take the view that the company has the capacity to see further cash growth – particularly given strong organic sales growth to date.<\/p>\n

Conclusion<\/h2>\n

To summarise, I take the view that Lindt & Spr\u00fcngli has shown resilient growth overall given macroeconomic pressures with respect to inflation.<\/p>\n

With that being said, I will be looking for evidence in upcoming half-year results that the company can:<\/p>\n