Strauss Group Ltd. (STRS) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining us today. Welcome to Strauss Group's Second Quarter 2026 Results Earnings Call. On our call today, management will provide a review of the results, followed by a question-and-answer session. [Operator Instructions] As a reminder, this online Zoom earnings call is being recorded Wednesday, August 12, 2026. A recording of this call will be available on the company's website a few hours after the call. With me today are Mr. Shai Babad, Strauss Group's President and CEO; and Mr. Tobi Fischbein, the Group CFO; and myself, Avshalom Shimi, Head of Investor Relations. I would like to remind everyone that this online webinar may contain projections of other forward-looking statements regarding future events or future performance of the company. These statements are only predictions and may change as time passes. Strauss Group does not assume any obligation to update this information. Actual events or results may differ materially from those projected, including as a result of changing industry and market trends, reduced demand for our products, timely development of new products and their adoption by the market, increased competition in the industry and price reductions as well as due to risks identified in the documents filed by the company with the Israeli Securities Authority. Shai, the floor is yours.

Thank you very, very much, Avshi. Thank you very much, everybody, for joining us today to this earnings call for the second quarter of 2026 and the first half of 2026. And with that, let's start. Avshi? Thank you. So we'll start with the highlights of the quarter. So as you can see, there is a very, very strong growth of the EBIT and the net profit of the company for 2026 for the second quarter and for the first half as well with more than 40% increase to ILS 363 million in EBIT and to almost ILS 200 million in net profit, which actually multiplies the net profit. With that, we also see a decrease in revenues. The decrease in revenues is mainly 5% of it is mainly due to currencies. And the other decrease is due to the decrease in green coffee prices, which was transferred to the consumers and us reducing prices in Brazil mainly, but also in Central Eastern Europe. When we look volume-wise, there is a strong mid-single-digit growth of volume in the first quarter and also in the second quarter, which shows that our organic growth path is solid and strong. In addition, we continue to focus very much on our core brands and the growth of our core brands and investing on our core brands. And we also announced a dividend distribution of ILS 180 million, which will be distributed shortly, which is equivalent to 2.7% yield on an annual basis. So here, you can see the general results. As I mentioned before, the decrease in revenue is mainly due to the strengthening of the shekel and the reduction of coffee prices mainly in Brazil. But on the other hand, we know that there is a -- we saw that there's a strong volume growth of mid-single digit across our business. When we look at the EBIT and the net profit and the cash flow -- free cash flow, we can see substantial improvement. This is -- we can see is the new platform of profit that the business now can -- is holding. We published our strategy 3.5 years ago, saying that we want to get into a new platform of profit of approximately 10% margins and productivity of between ILS 300 million to ILS 400 million. And we can see from those results that all the actions that we took along the years, implementing our strategy with doubling down on core categories, with the portfolio optimization, with the productivity activity that we have done in the company. We see now that this is taking its turn. And with that, we see the substantial improvement in the results. We also see a good translation between the EBIT and to the net profit and that most of the additional EBIT that we encountered in quarter 2, 2026 actually made its way. It was transferred to the net profit and to the free cash flow. And we do see this as a solid platform that we can also look ahead and forecast that this is the new platform that we want to continue to have when it comes to our margins and when it comes to our EBIT, EBITDA and net profit. Next. When we look about Israel, so we see the major improvement in Fun & Indulgence, the turnaround that we've done in the confectionery. Here, I should note that there is a -- from the ILS 52 million that you see here in EBIT, half of it approximately is due to insurance money that we have received a one-timer. But even taking that out, we see that the Fun & Indulgence is getting back to an 8% margin. And by the end of the year, we believe we can get to a 10% margin here. And with the continued improvement since the cocoa prices that we are seeing now are higher than the cocoa prices that we'll see in H2 of 2026. This is with 0 relation to the cocoa prices in the market. It's due to our hedging policy and our hedging quantities that we have for the next 6 months and also for the next year. And therefore, we know that we will see continuous improvement Fun & Indulgence for the rest of the year. We see here a decreasing -- a little bit of a decrease in revenues in Health & Wellness. Here, we should note that we used to distribute third-party products such as our oranges of Primor and the spicy herbs of Zahavi, which we stopped distributing and taking out distribution that we took out comparing apples-to-apples. Also here, there's growth in revenues and, of course, continued growth in the EBIT. When we look at Coffee, here also in the revenues that we had Elite Coffee-To-Go, which is our coffee chain, which we closed towards the end of last year. And therefore, if you take that out, you see the gap here of the decrease in revenues in coffee. But overall, substantial improvement in the results in Israel, even without the one-timer and if we take the onetime out, there's a strong growth in EBIT and continuous growth in volumes in Israel. This is just to look a little bit of our core brands and our investment in our core brands. We see a big phenomenon of dairies that are growing substantially outside Israel, but also in Israel, mainly with protein products and functional products, and we have put a lot of initiatives in increasing our innovations there and launches of new products that we have done in the market in order to go with the trend and to promote our growth. And here, you can see just an example of part of our brands and how we did, whether it's a diversified innovation, whether it's an improvement innovation with improving the product with fiber, with collagen with protein or reducing sugar and whether it's with our new launches of new yogurts under the Danone brand from our new factory of plant-based. Next. There was a survey held in Israel for the top 100 brands from all sectors, not just the food and beverage sector or the FMCG sectors from all sectors, what are the top 100 brands in Israel. And out of the top 100, 9 of our brands made it to the top 100 list with 3 of our brands making it to the top 20 and one of our brand Yotvata making it to the top 10 for the first time. And this is just a proof of the solid work that we are doing in investing in our brands and in growing our brands. Next. When we look at Coffee International, I think here is the main story of the improvement of our results, if you look over time in the past few quarters. We've managed to get a new platform of profit in Brazil, while we maintain gross profit per kilo in Brazil. So whether the prices of green coffee are going up or whether they are going down, we are maintaining a gross profit per kilo in reals in all of our sales. We also grew in Brazil high single digit in volumes, what helped us to push our profits, the total profits even further. So when we look now at Brazil and also looking ahead, we believe that this is a new platform of profit we've managed to achieve in the R&G, and we continue also our work in the non-R&G segment. Hopefully, Yoki will be concluded in the next month or so. We're still waiting. The only thing we're waiting for is the Brazilian antitrust to approve the deal. Once they will approve the deal, we will be in a place where our non-R&G will grow to almost 40% of all our activity in Brazil, which will help us also deal with the volatility of grain prices, while we managed to maintain a new profit platform in Brazil and in our -- and also in Central Eastern Europe when it comes to our coffee. And we are very happy that our international coffee has reached the double-digit margins. And we think when we're looking ahead, this is a platform that we will be able to preserve. Our Water business also grew nicely, especially in Israel with more than 7% growth. All of it is done by volume with the new launches of our new machine with our Shabbat machine and the soda machine that we launched. We also see that looking ahead into the second half, we hope that -- we see that this growth trend will continue. We still have some difficulties in China. We are growing in China mid-single digits in the past half year and also in the last quarter. But yet, profits in China are still lower than what they were due to the very high competition. We are gaining -- and we are maintaining our market share there as #1 -- between #2 and #1, and we are strengthening our position in China, but getting back to the level of profits we had before will take longer. As I mentioned in the last earnings calls, we believe this will be done somewhere around mid-'27 towards the end of '27. It will still take time. But overall, we believe that our Water business as a whole will show improvement in the results, in the profit and in the margins in 2026. Next. When we talk about the strategy, and maybe this is almost the last quarter that I'll talk about the current strategy because the strategy will end towards the end of 2026. So we said we're going to double down in our home base. We'll optimize the core, we'll optimize snacking. We'll optimize the growth of our core brands in Israel. We'll optimize the portfolio, taking out parts that are not relevant, such as [ Bror Hayil ] that we took out the fresh vegetables and the Elite Coffee chain on the one hand. But on the other hand, we managed to do a substantial turnaround to our confectionery, as we mentioned. And today, in Israel, we have a very, very solid -- we have very solid categories in which we play with a very strong path for growth, especially in the dairy, in the protein part, in the functional food part, which is growing substantially not just in Israel, but also outside Israel. And a lot of our products and our innovation is aimed to that. So we see solid growth there. When we talk about Brazil, we managed to get to the new platform of profit. We managed to do a turnaround to our R&G business in Brazil. We managed to also do a turnaround to our business in CEE. We are growing also the non-R&G beyond coffee, the non-R&G segment, such as the Yoki deal that I mentioned before, and we see a healthier platform and a healthier base and infrastructure for growth looking ahead. And in our Water International and in our Water business, we changed and transformed the company from a single product company to a multiproduct company. We have more than 5 different machines with different functionality and different price tags today that are in the market. And with that, we believe that we'll be able to continue to grow the Israeli market such as with our Shabbat, the product for Saturday for the people who keep Shabbat, and also the affordable machines, which we just launched in the U.K. And we also dealt a lot with the future-ready and resilience of the company. When we talk about future-ready, we talked a lot about productivity, about doing things with less -- doing things better with less resources and doing things and improving our processes in a much better way. This was done through our productivity plan. We said we will get between ILS 300 million to ILS 400 million in productivity in place. And if you compare our business today to our business in 2021 and you take out the price increase of raw material such as such as coffee and you take out the price increases as well and you look what was the profit in 2021, and you do the same for 2026. You take out the increase in raw materials and you take out the price increases, you will see that today, we have a healthier profit platform with a higher -- much higher margins that we had before, mainly due to the productivity and the double down we did on our core activity. And we also touched resilience. We talked a lot about the health of the organization, the leadership model, the agility of the organization, which helped us achieve all the results that you see ahead. Next, Avshi. This is just to talk about, again, the productivity journey. We will announce by the end of this year that we reached the higher segment of what we published to the market, heading 400 (sic) [ ILS 400 million ] and above in the scale here that you see, and that helps us a lot reach our plan. We will, of course, issue -- we are now issuing our second plan for the next upcoming years and also our strategy going ahead, and I'll say a couple of words on it in a few minutes. Next. When we look at the long-term target of the strategy that we set for the end of 2026, so we believe that from '21 to 2026, if you do the CAGR, we will reach the 5% CAGR even though there were price decreases due to the coffee and cocoa. And when we look about like-for-like and take out the currency effect, then, of course, we'll reach much more than 5% CAGR. We believe we will reach the margins that said this quarter, we finished with 12.6% EBIT margin. We will be -- we believe we'll reach the 10% to 12%, maybe on the higher side of that scale by the end of this year. The productivity, as I mentioned before, will be on the higher side of the scale this year. We are continuing to invest in our infrastructure of opening bottlenecks, investing in new lines for growth where we have capacity constraints, investing in automation to bring productivity, investing in maintenance in order to improve the quality and the resilience of the company. And when we started the journey, approximately 66%, 67% of our portfolio was core. Core, we define as something that is growing 5%, that has a double-digit margin and also that is -- we are even #1 or #2 in the market. When we started the journey, 67% of the categories were core. Today, we can say around 85% already are core, and we'll also reach this target by the end of 2026. Next. I'm also happy to announce that there were 2 ratings that were done in this quarter. One was done by Maala, who rates our ESG rating. We managed to get a very high score on our ESG rating, reaching a AAA, which is the highest score that you can get with Maala and AA with MSCI. We are the highest ranked food company in Israel in regards to ESG. And when we talk about BDI, that was a survey that was held in Israel, which are the 100 most loved and the ones -- the companies that you want to work at. So it's all companies, again, all categories. Strauss was chosen to be #16 of all the companies in Israel of all the categories in Israel as the loved place to work in and chosen by the employees and got the highest rating. We improved our place from #21 last year to #16 this year. And when it comes to the food industry and the FMCG industry, we came as #1. And last slide by me, but it's very important, last but not least, as we say, on the left side, on the upper side, you see the last 12 months of the business, meaning July 2025 till June 2026. And you can see revenues, you can see the EBITDA reaching ILS 1.7 billion with 14%. You can see that on EBIT, we reached ILS 1.3 billion with 10.6%. And you see that in net profit, we reached ILS 700 million. This is the platform we achieved in the last 12 months. When we look ahead, we think this is a sustainable platform, which means we can take this platform and continue with this platform. And even there will be -- we believe that until the end of 2026, there might be even a small upside to that. But we believe that this platform we achieved due to the operations, the productivity efforts that we've done, the double down core brands in Israel, the new platform that we have in Brazil. And here, I want to say one more word about Brazil. There's a tendency to think that the change in raw materials prices of cocoa and coffee have an immediate effect on our business. This is totally not the case. Daily, weekly and even monthly trends in coffee and cocoa have 0 effect on our results, and I'll repeat, that have 0 effect on our results. Only long-term trends, because of our hedging policy, only long-term trends will have an effect on our results. So if cocoa prices or coffee prices raised by 5% one day and then go down 3%, then goes up 5%, then goes down 8%, et cetera, et cetera, and stay relatively the same, but just are very, very fluctual during the month, that has 0 effect on our business. What will have effect on our business if it's a long-term trend like we had in coffee from 2024, mid-2024 until the end of 2024 and even '25 where coffee -- green coffee prices were rising. So as long as -- it's a long-term trend, because we are hedged in Central Eastern Europe, because we are hedged in Israel and because we have almost full transfer of price in Brazil from green coffee prices to selling price, the effect of the prices is 0 or relatively low when it's a short-term trend. And this is something very, very important to mention. And look -- going back to the platform we achieved, therefore, we believe that the platform we achieved due to our new platform -- profit platform in Brazil and in CEE and in Israel, this is something that we can carry on into the future as well. And going -- on the bottom there, you see the results of 2025, and you can see the improvement of the last 12 months compared to what we had in the full year of 2025, and we believe this is sustainable. And last but not least, again, looking ahead to what's next. So we will be launching our new strategy from 2027 to 2030 in a couple of months towards the end of the year. It's very important to note that this strategy that we had till now talks a lot about double down on the core, fixing the infrastructure, the current categories in which we play in, making them very resilient and getting them to be engines of growth. The new strategy will talk a lot about the new engines of growth and how do we take this very, very solid infrastructure that we built and the core that we have strengthened and made more resilient and now how do we grow the next layer of growth, and we are very excited to show and to share with you the next phase of the strategy. We'll talk about the year 2027 to 2030. We will continue with the next productivity journey, cutting down costs, being more productive is something that we'll do a double down on going into the next phase, again, and we'll set targets for that, again, to continue to improve our profit and our margins. We'll go into an AI digital transformation. We started our AI journey. We believe that AI being very, very specific where we operate in which streams is very crucial and very important to our business, and it can have a substantial effect, and we are working very hard on that. And last, we will focus more and more on our financial discipline. And alongside the cost efficiency, we will talk about the cash conversion, the net, the free cash flow, and there's a stream headed by Tobi that is pushing very much to that. You can already see some of the results when we translate the EBIT to the net profit in Q1 and also in Q2 compared to last year, and we believe that this trend will continue. And with that, I'm finished, and I'll transfer to Tobi.

Thank you, Shai. Let me now move to our financial results for Q2 of 2026, starting with the group level performance and then drill down into the business segments. Group sales reached ILS 2.87 billion, down 1.9% on a like-for-like basis, which excludes the FX translation of the local currency of our foreign activities into our reporting currency, the Israeli shekel. Strauss Israel sales were impacted mainly by Coffee-To-Go retail chain divestment in June 2025 and discontinued third-party product distribution in the Health & Wellness segment. Coffee International sales declined 3.9% on a like-for-like basis due to lower pricing in Brazil following the decline in green coffee input costs, partially offset by volume growth. Strauss Water continued to grow, supported by installed base expansion and improved sales mix. Moving to Slide #17. Group sales reached ILS 5.87 billion in the first half of the year, slightly up on a like-for-like basis. Strauss Israel sales grew 1.6%, driven by volume and pricing. And despite the Coffee-To-Go divestment, Coffee International sales were impacted by lower coffee prices and declined 2.2% like-for-like. Strauss Water continued to grow, supported by installed base expansion in Israel, higher U.K. sales and improved sales mix. Moving to Slide 18. Group EBIT reached a record ILS 363 million, up 42% year-on-year, with EBIT margin improving to 12.6% from 8.3% in Q2 of 2025. This improvement was driven by strong performances in both Strauss Israel and Coffee International. Strauss Israel benefited from productivity gains, a stronger shekel and onetime insurance income of ILS 27 million, while Coffee International benefited from volume growth and lower green coffee input costs. Strauss Water profitability recovered following the Q1 war impact. Moving to Slide 19 for the group EBIT for the first half of the year. Group EBIT reached ILS 679 million, up 53% year-on-year, with EBIT margin improving to 11.6% from 7.3%. The increase was driven mainly by strong profitability in Strauss Coffee International and Strauss Israel. Moving to Slide 20 for an overview of the net income. The net income more than doubled to ILS 195 million, driven by the significant EBIT improvement year-over-year. For the first half of the year, net income reached ILS 376 million, up about 120% year-on-year, reflecting improved operating performance across the group, partially offset by higher finance and tax expenses. Moving to Slide 21 for cash flow. Free cash flow improved in the quarter significantly to ILS 150 million compared to negative ILS 89 million a year ago. Operating cash flow reached ILS 265 million, an improvement of ILS 214 million year-on-year. For the first half of the year, free cash flow improved to ILS 104 million compared to negative ILS 584 million last year, driven by higher EBITDA, lower working capital requirements and lower financial payments. Moving to Slide 22 for a view on our net financial debt and leverage ratio. The net debt for the group stood at the end of June at ILS 2.5 billion, while the net debt-to-EBITDA ratio remained at 1.5x compared to 2.4x a year ago. This is a major improvement. The year-on-year improvement was driven by robust EBITDA growth and working capital release. Overall, our balance sheet remains strong and well within our target leverage range. On Slide 24, I will discuss now Strauss Israel and its 3 business segments. Strauss Israel sales reached ILS 1.3 billion in Q2 of 2026, down 1.5%. Health & Wellness sales remained stable despite the discontinuation of certain third-party distribution activities. Fun & Indulgence, Snacks and Sweets grew 1.8%, driven by H2 2025 pricing in response to raw material cost inflation. Coffee Israel sales declined 11.1%, mainly due to the Coffee-To-Go divestment, while excluding this Coffee-To-Go divestment, sales declined 3.1%, partly due to the timing of Passover and the impact of the war with Iran. Slide 25, Strauss Israel sales for the first half of the year reached -- sorry, increased 1.6%, driven by volume and pricing despite the CTG divestment. Health & Wellness sales grew 2.1% and benefited from volume growth, partially offset by discontinued third-party distribution. Fun & Indulgence, Snacks and Sweets grew 5.6% following H2 2025 pricing in response to raw material cost inflation. Coffee Israel grew 3.5%, excluding divested CTG business, supported by pricing implemented in the second half of last year. Overall, Strauss Israel delivered solid volume growth in the first half of the year. On Slide 26, Strauss Israel EBIT. Strauss Israel EBIT reached ILS 198 million in Q2 of 2026, up 46% with EBIT margin improving to 15.2% from 10.3% in Q2 of 2025. For the first half of 2026, EBIT reached ILS 373 million, up 50%, with EBIT margin expanding from 9.1% a year ago to 13.5%. Health & Wellness benefited from higher sales and productivity. Fun & Indulgence, Snacks and Sweets improved significantly due to higher gross profit and a ILS 27 million insurance income, while Coffee Israel EBIT increased by 35%, supported by pricing, stronger shekel and productivity. On Slide 28, moving to Coffee International. The Coffee International business delivered another quarter of strong profit and margin gains. Sales were ILS 1.33 billion, down 3.9% on a like-for-like basis, reflecting lower coffee prices in Brazil. At the same time, EBIT increased 44% to ILS 148 million and EBIT margin improved from 6.7% a year ago to 11.1% in this quarter. For the first half of 2026, EBIT increased 78% to ILS 280 million, supported mainly by lower green coffee input costs and strong commercial execution. On Slide 29, looking at our Coffee International geographies. Sales of Tres Coracoes, our 50% owned JV in Brazil declined 8.2% on a like-for-like basis, driven by lower pricing, offset by high single-digit volume growth. In Central and Eastern Europe, like-for-like sales grew 6.4%, supported by solid volume growth in all our markets, except Romania. Overall, the underlying business trends remain positive. On Slide 30, for the first half of the year, we see that Tres Coracoes like-for-like sales declined 7.1% on higher volumes, while CEE like-for-like sales grew 11%, driven by volume and pricing. This demonstrates continued momentum across our Coffee International market despite currency headwinds. On Slide 31, we see the results of Tres Coracoes, which we have already covered. We see the record Q2 profitability despite the lower selling prices. We see the sales decline of 8.2% to BRL 3.25 billion, reflecting the passthrough of lower green coffee costs. At the same time, gross margin improved significantly to 27.5% and EBIT increased 35% to BRL 378 million, with EBIT margin reaching 11.6%. This performance highlights the strength of the Tres Coracoes platform and its leadership position in Brazil. On Slide 33, turning now to Strauss Water. Q2 Water revenues increased 7.1% to ILS 233 million, supported by higher sales in Israel and the U.K. as well as an improved sales mix. EBIT improved slightly to ILS 28 million, while EBITDA reached ILS 48 million, up 10.4% year-on-year. Gross profit benefited from higher sales productivity and a stronger shekel. For the first half of 2026, sales increased almost 7% year-on-year, while EBIT continued to reflect the impact of the war in Q1 and lower HSW equity gains. On Slide 34, we see the HSW Haier Strauss Water financial highlights with Haier Strauss Water continued to grow sales and maintain market leadership despite intense competition. Q2 sales increased 2.6% in local currency to CNY 490 million, while net income declined 14.3% to CNY 35 million, reflecting increased marketing investments and spending on new products. For the first half of the year, sales increased almost 6% to CNY 988 million, while net income declined 12.4% to CNY 91 million, reflecting a 9.2% margin. HSW continues to invest behind innovation and future growth in China. I will now turn the call back to Avshi for Q&A.

Thank you, Tobi. So we will move now to the questions that you guys have flagged to us. The first question, actually, the first 3 questions regarding Brazil. Coffee International margins recovered to 11.1% on the back of lower green coffee costs. So how much of this is temporary? And how much of it is structural? And is 11% or the range a sustainable margin band as coffee prices stabilize?

So again, I can't relate to the margin itself because coffee prices might go up radically or go down radically. And then what will happen is that the margin will change accordingly because we do a full transfer of those prices in our pricing. So it depends on what will happen to revenues. What I can say is that, yes, we are in a new platform of profit in Brazil. That means that we are working very much to retain gross profit per kilo that we sell. And therefore, we believe that the absolute profit that we see from Brazil will -- is a good platform, will remain and even grow. We grew in volumes this quarter in a high single-digit growth of volumes. And as long as that will continue, and we will continue to grow in volume and maintain gross profit per kilo, the absolute profit that we generate in Brazil will continue to grow. Regarding the margin, it very much depends. If green prices go down by 20% and therefore, revenues go down by 15% or 20%, then margins will radically go up. If green prices go up by 20%, and we increase prices by 20%, then the margins go down. But the absolute profit, if you compare it to year-by-year, will continue to grow, and we believe that this new platform of profits in Brazil, which is healthier and it's more than double than what we had in the past, is a sustainable level of profit also looking ahead.

Thank you, Shai. The second question regarding Brazil is how -- can you give some color about how the competitors are responding to the recent increase in Arabica prices? And also, if you can update regarding Yoki acquisition.