Strauss Group 2025: Brazil Coffee Carries The Recovery, But 2026 Is Still A Proof Year

Getting To Know The Company

At first glance, Strauss still looks like a large, diversified, fairly predictable Israeli food company. That is only partly true. In 2025 the main economic engine did not sit in Israeli dairy, snacks, or chilled products. It sat in international coffee, and especially in Brazil. So the key question in this report is not whether Strauss "returned to growth." It did. The real question is whether the recovery is already broad-based, and whether it is already reaching the cash and shareholder layer in a cleaner way.

What is working right now is clear enough. On management numbers, sales rose to NIS 12.507 billion and EBIT rose to NIS 1.020 billion from NIS 752 million in 2024. Coffee International jumped to NIS 493 million of operating profit, Israel held NIS 5.457 billion of sales, and Water stayed profitable and stable. Early 2026 also did not open in defensive mode: the company raised about NIS 671.5 million par in a January 2026 bond expansion, and on March 24, 2026 approved a NIS 250 million dividend.

But the picture is still not clean. Anyone reading only the management layer gets a food company that is moving through 2025 well. Anyone reading the shareholder layer gets something more complicated: under IFRS, revenue was only NIS 7.823 billion, and profit attributable to shareholders fell to NIS 404 million from NIS 624 million. That does not mean the business weakened. It means there are two different reading layers here: real operating improvement on the one hand, and a gap between the group's economic engines and what ultimately remains with shareholders on the other.

The active bottleneck is twofold. The first is concentration of recovery. Coffee International, and especially Três Corações in Brazil, carried too much of the improvement. The second is conversion into cash. The company highlights management free cash flow of NIS 215 million after negative NIS 51 million in 2024, yet cash fell to NIS 535 million from NIS 1.142 billion, and net debt rose to NIS 2.093 billion from NIS 1.670 billion. In other words, normalized cash generation improved, but the all-in cash picture remained tighter.

That is also why the story matters now. As of April 3, 2026, market cap stood at about NIS 15.3 billion. This is not a share the market is flagging through an aggressive short position: as of March 27, 2026, short interest as a percent of float was only 0.08% and SIR was 0.29, both below the sector average. In plain terms, the market is not saying the story is broken. It is saying there is still no full proof that the recovery has broadened beyond Brazil and become clean enough at the cash layer.

Strauss's quick 2025 economic map looks like this:

That chart matters because it reminds the reader that Strauss is no longer "Israel plus some international exposure." The group now leans almost equally on Israel and on international coffee, and the 2025 jump came mainly from the latter.

Events And Triggers

The annual report does not stand alone. Three early-2026 moves already change the right way to read 2025: the Yoki acquisition in Brazil, the January bond issue, and the dividend approved in March. Taken together, they say Strauss is not sitting back after a recovery year. It is still reshaping the structure.

Brazil is moving from a coffee story to a broader food story

On March 16, 2026, Três Corações, the Brazilian joint venture in which Strauss holds 50%, signed an agreement to acquire 100% of General Mills Brasil Alimentos, whose main asset is Yoki, for BRL 800 million, about NIS 475 million at the signing exchange rate. Yoki owns leading local brands including Yoki and Kitano, two manufacturing facilities, and five third-party distribution centers in Brazil. Closing is subject to Brazilian antitrust approval and other customary conditions, and the company expects completion by year-end 2026.

The investor presentation adds another important layer: Yoki had roughly BRL 2 billion of 2025 net sales, around 3,700 employees, and categories in which leading positions represent about 65% of sales. Management also says contribution to Três Corações profit and free cash flow is expected within 18 to 24 months from closing.

This is a material trigger. On one side, it is a real strategic expansion beyond coffee. On the other, it is not an immediate 2026 earnings contribution, and certainly not an immediate benefit to Strauss shareholders at the listed-company level. Until closing happens and integration proves itself, this is still mostly an option being built.

2026 also opened with refinancing

On January 21, 2026, the company completed a Series V expansion of NIS 671.5 million par, with roughly NIS 589 million of net proceeds. The nominal coupon is 8.2%, the effective rate at listing was about 4.31%, and principal payments run from June 2026 through June 2037. Both Midroog and S&P Maalot rated the issue on a stable outlook, at Aa1.il and ilAA+.

The implication cuts both ways. There is no smell here of a shrinking funding story. The local debt market is still open to Strauss and ratings remain strong. But a company that is still refinancing and building debt flexibility in early 2026 is not entering a year of full comfort. It is still actively managing the capital layer.

The dividend is both a signal and a cash use

On March 24, 2026, Strauss's board approved a dividend of NIS 250 million, about NIS 2.14 per share, to be paid on April 14, 2026. This can be read as a confidence signal after a recovery year. That is true. But the other side also matters: this dividend comes after a year in which cash fell sharply, and after a January debt raise.

So the event is not one-directional. It reinforces management confidence in the business, but it also sharpens the point that the 2026 financial layer will remain part of the investment reading.

Efficiency, Profitability, And Competition

The central story of 2025 is not simply "profitability improved." It is that profitability improved in a very uneven way across engines. Coffee International broke forward. Israel held the line, but did not break out. Water stayed a cushion. The gap between segments matters more than any consolidated headline.

That chart tells the full quality-of-recovery story. Israel barely moved. Water did not move. Coffee International nearly doubled. So anyone describing 2025 as a broad group-wide recovery is overstating the case. The decisive engine remained one engine.

Coffee carried the year, and especially Brazil

Coffee International finished 2025 with NIS 6.155 billion of sales and NIS 493 million of operating profit, versus NIS 4.705 billion and NIS 214 million in 2024. Growth excluding FX reached 40.8%, and operating margin rose to 8.0% from 4.6%. This was not cosmetic improvement. It was the group's main engine.

The center of gravity sat in Brazil. Três Corações sales, on Strauss's share basis and net of intercompany sales, rose to NIS 4.329 billion from NIS 3.299 billion. In local currency growth was 45.2%, and the stronger shekel versus the Brazilian real cut about NIS 320 million from the reported number. In other words, even the strong reported 2025 figure still understates the local strength.

Beyond sales, Três Corações lifted its average value market share in Brazilian roast-and-ground coffee to 33.4% from 32.6% and remained number one in the country. On a 50% basis and in BRL, sales rose to 7.049 billion and operating profit before other income and expense jumped to BRL 628 million from BRL 193 million. That jump came mainly from pricing, but also from productivity initiatives.

The key point is that Brazil is no longer just a geographic segment. It carries a decisive share of coffee economics: on management numbers, Brazil represented NIS 4.329 billion out of NIS 6.155 billion of Coffee International sales, more than 70% of the segment.

Israel held the line, but did not break out

Israel finished 2025 with NIS 5.457 billion of sales, up 5.6%, yet operating profit rose only to NIS 530 million from NIS 528 million. In plain terms, Strauss Israel did not weaken, but it also was not the reason the group looked much better.

The stronger parts of Israel came from two directions. Health & Wellness rose to NIS 405 million of operating profit from NIS 389 million, with a 12.8% margin. Coffee Israel rose to NIS 113 million from NIS 95 million, with a 12.5% margin. Those two engines held the base.

The problem sat in Snacks & Confectionery. Sales rose to NIS 1.395 billion from NIS 1.264 billion, but operating profit fell to only NIS 12 million from NIS 44 million, and margin shrank to 0.9% from 3.5%. That is the number that breaks the easy argument of broad recovery. Israel did grow, but it bought that growth with sharp margin pressure in one category.

That chart sharpens why "Israel" as one headline hides more than it reveals. The issue is not that local activity is weak everywhere. The issue is that one category absorbed most of the relief generated elsewhere.

Cocoa explains the squeeze in snacks, but also frames the 2026 test

Snacks & Confectionery is a category where it is not enough to say "raw materials got more expensive." Cocoa and cocoa derivatives represented more than 52% of raw-material and packaging procurement cost in 2025. In addition, Strauss had two main suppliers in the segment whose purchases represented about 37% and 26% of segment cost of sales. That is no longer just a commodity-price issue. It is also a meaningful procurement concentration issue.

In market terms, 2025 was mixed. Average cocoa price for the year was down 9% versus 2024, but by year-end cocoa was already down 52% versus year-end 2024, and fourth-quarter average price was down 39% versus the comparable quarter. At the same time, Arabica prices were up 56% on a full-year average basis. So the bigger cocoa relief met much heavier coffee pressure. That helps explain why Coffee Israel managed to pass through price and still improve profit, while Snacks & Confectionery stayed behind.

That chart matters because it explains why 2026 is a proof year rather than a harvest year. Cocoa relief is visible on the screen, but the company itself says the effect on input cost is gradual because of procurement and hedging processes. So anyone expecting all of the late-2025 relief to flow immediately into 2026 profit may be moving ahead of the evidence.

The presentation also reveals an important management gap: excluding cocoa derivative losses, Snacks & Confectionery EBIT would have been NIS 61 million in 2025, still below NIS 89 million in 2024. That means cocoa is a central explanation, but not the whole explanation. Even after the adjustment, margin does not automatically return to a comfortable place.

Water stayed stable, but China did not disappear from the story

Strauss Water finished 2025 with NIS 895 million of sales and NIS 115 million of operating profit, almost unchanged from 2024. That is a stable contribution, not a breakout. In Israel the company benefited from a larger installed base and improved mix, and in September 2025 launched the tami4shabbat water bar, which supported fourth-quarter sales. At the same time, the UK activity is still small and competition in China intensified.

The yellow flag here is HSW in China. The company explicitly says Xiaomi expanded its activity in water solutions in China during 2025 and increased competition. HSW responded with more product-development, marketing, and channel investments. In other words, Water did not break, but it also did not operate in an easy market. That is why profit stayed flat rather than moving higher.

There is also a forward operating option in the same line. The second plant in China is expected to begin operation during the second quarter of 2026. If it starts on time and supports more development and production flexibility, it can improve HSW's toolset. If competition keeps intensifying, even the new plant will not turn Water into the group's main upside engine.

Cash Flow, Debt, And Capital Structure

This is where one of the most important gaps in the report sits. Strauss highlights management free cash flow of NIS 215 million after negative NIS 51 million in 2024. That is a normalized cash-generation picture, meaning it shows that the business's underlying cash engine improved. But once one moves to all-in cash flexibility, meaning how much cash is actually left after all uses during the period, the picture becomes much tighter.

Cash flow from operations fell to NIS 461 million from NIS 560 million. Investing cash flow moved to negative NIS 427 million after positive NIS 248 million in 2024, mainly because 2024 included proceeds from disposals of equity-accounted investments. Financing cash flow was negative NIS 597 million versus negative NIS 183 million in 2024. Year-end cash and equivalents fell to only NIS 535 million from NIS 1.142 billion a year earlier.

That chart shows why the two cash frames must not be mixed. Management free cash flow improved, yet year-end cash declined and net debt rose. Both statements are true at the same time.

What the shareholder layer sees, not only what management sees

Another point many readers may miss is that the Brazilian engine, which lifted 2025, did not simultaneously send clean cash upward at the same intensity. The group's share in profits of equity-accounted investees rose to NIS 360 million from NIS 179 million. But Três Corações did not record a dividend in 2025, whereas a NIS 41 million dividend was recorded in 2024.

Beyond that, the company says its share in Três Corações retained earnings stood at roughly NIS 402 million at year-end 2025, yet roughly NIS 338 million of that sits in a tax-incentive reserve that management decided not to distribute as a dividend, and another roughly NIS 29 million sits in a legal reserve. This is a material detail. It means the engine that strengthened the report does not translate one-for-one into accessible cash.

That table is the heart of the thesis. Strauss is not "beautifying" results. It genuinely created operating value in Brazil. But anyone translating that automatically into a much wider cash cushion for shareholders is making a leap the filing does not support.

Working capital and day-to-day funding are still part of the plumbing

There is also good reason to stay precise on working capital. The company says the decline in operating cash flow came mainly from lower supplier balances, after 2024 held a higher balance due to elevated commodity prices. Alongside that, the group continues to use meaningful operating funding channels.

Under supplier financing arrangements, the balance of suppliers that sold Strauss obligations stood at NIS 533 million at year-end 2025, of which NIS 523 million had already been paid by the financing party. Payment terms range around 30 to 184 days. In addition, trade receivables derecognized under non-recourse factoring agreements stood at NIS 657 million versus NIS 496 million a year earlier.

That is not necessarily a red flag. It is a reminder that Strauss's cash flow does not move only through profit and inventory. It also moves through a sizeable working-capital funding infrastructure. In a company of this scale that is legitimate. But it does mean the cash bridge partly depends on active management of those financing pipes.

Debt is managed, but it remains part of the story

On the one hand, this is not a debt-wall story. Gross debt fell to NIS 2.628 billion from NIS 2.812 billion, average maturity stood at 4.42 years, management net debt to EBITDA improved to 1.6 from 1.7, and the accounting ratio stayed at 1.7. Equity to balance sheet improved to 37.1%, and the company remained in compliance with all financial covenants.

On the other hand, the covenants themselves show what the market is watching. The company committed that net financial debt to annual EBITDA should not exceed 7, while moving above 4 for two consecutive quarters triggers a coupon step-up. In addition, equity to balance sheet should not fall below 20%, and minimum equity is set at NIS 500 million for Series H and NIS 600 million for Series V. The company is far from the edge, but these covenants define the discipline language.

So the right conclusion is not "the balance sheet is strong" in an overly relaxed sense. The right conclusion is that the balance sheet is managed, well rated, and open to the debt market, but 2026 still has to prove that flexibility remains comfortable after refinancing, dividend, investment, and the Yoki path.

Outlook

Before looking at 2026, five non-obvious findings need to be made explicit:

1. The operating improvement is real, but the weakness in attributable profit mainly reflects the fact that 2024 was inflated by NIS 404 million of net other income and expense, while in 2025 that line turned into negative NIS 50 million.
2. Coffee International became the group's largest engine, but part of that economy sits in equity accounting and in Brazil, not directly in immediately accessible shareholder cash.
3. Israel did not weaken, but its profit base remained narrower than the sales headline suggests because Snacks & Confectionery nearly lost profitability.
4. Water stayed stable, but China moved from being a more comfortable growth angle into a market that requires more investment and competitive response.
5. Early 2026 already shows management is not merely enjoying 2025. It is building 2027 through refinancing, the Yoki deal, and the second China plant.

That chart is probably the key to the whole report. It shows why a reader focused only on reported profit can reach the wrong conclusion. The business improved operationally, but 2024 enjoyed much larger one-offs and 2025 paid more in financing.

The conclusion from there is simple: 2026 looks like a proof year, not a harvest year. Strauss has to show that recovery does not remain confined to Brazil, that cocoa relief genuinely reaches Israel, and that the cash layer remains controlled while strategic moves continue.

The targets are already on the table, and the gap to them is still open

The company's 2024 to 2026 strategy set targets for average organic sales growth of about 5%, management operating margin of 10% to 12% in 2026, a productivity program expected to deliver NIS 300 million to NIS 400 million of annual platform operating-profit improvement, and CAPEX of 5% to 7% of sales focused on core activities. The company also says it met its 2025 productivity targets.

The problem is that the margin target has not yet been reached. In 2025 management operating margin stood at 8.2%, still below the 2026 range. That is not failure. It simply means the market still needs another step, not just celebration around one recovery year.

Israel has to put snacks back on track

The first 2026 test sits in Israel. If the late-2025 and early-2026 cocoa decline starts to flow through inventory and hedging into margin, Snacks & Confectionery can recover meaningfully from a trough of NIS 12 million of operating profit. If that does not happen, even another strong coffee year will not be enough to prove the group has returned to a broader margin base.

That is also the right sector lens for a consumer-food company. It is not enough to see that the company raised prices and kept sales moving. The category that sat under commodity pressure has to return to healthy profit generation, not only volume.

Brazil has to stay strong while broadening categories

In Brazil the test is different. Três Corações proved market strength, pricing, and productivity in 2025. In 2026 it will have to show that this strength holds even as the company prepares to expand beyond coffee through Yoki. This is exactly the point where a large strategic move can help the long-term thesis while weighing on the short-term one if integration, regulatory review, or management attention become messy.

Management says in the presentation that Yoki should contribute to Três Corações profit and free cash flow within 18 to 24 months from closing. That wording matters. It explicitly says the benefit is not supposed to arrive immediately. So 2026 should first be judged on preserving coffee strength, and only then on execution of the new option.

Water has to remain a cushion, not become a new negative surprise

In Water, the hurdle is lower but still relevant. If the second China plant starts operating during the second quarter of 2026, and if competition does not erode profitability beyond what 2025 already showed, the segment can remain a stable cushion. That is enough. Strauss does not need Water to become a sharp growth engine, but it does need Water not to become a deeper investment hole.

The financial test has not disappeared either

Another 2026 test will be the tension among three cash uses: dividend, CAPEX, and the Yoki path. True, Yoki is expected to be funded from Três Corações resources. True, the company carries strong ratings and open bond-market access. But the market will still measure whether all of this happens without another sharp drop in cash or another jump in net debt.

Risks

The main risk in Strauss is not a collapse in demand for its brands. It is a situation in which 2025 was a real recovery year, but too narrow a one, and not yet enough to prove that the group has returned to a broader and more resilient profit and cash structure.

Concentration in Brazil and in equity accounting

The first risk is concentration. Brazil alone generated more than 70% of Coffee International sales, and Coffee International is the engine that drove 2025. When that engine operates through a joint venture accounted for under the equity method, value does not always move upward to listed-company cash at the same pace. If Brazil weakens, or if Yoki gets delayed, the effect will be disproportionate.

Commodities, hedging, and local competition

The second risk sits in Israel. Snacks & Confectionery does not only need lower cocoa. It also needs to show that pricing, promotions, and mix are not absorbing the relief on the way. In a consumer-food company, not every sales increase is equal to quality growth. If 2026 keeps volume through promotions and competitive concessions without truly lifting margin, the market will read it as growth bought at too high a cost.

China remains a competitive, unresolved arena

The third risk is Water in China. The company itself flags Xiaomi and broader market competition as factors that weighed on HSW and pushed more product-development, marketing, and channel investment. If the new plant comes up on time but the market keeps tightening on price, Strauss could end up with better manufacturing capability but not better economics.

The cash and working-capital layer still requires discipline

The fourth risk is cash-flow discipline. Supplier financing of NIS 533 million and receivables factoring of NIS 657 million are not problems by themselves, but they do remind the reader that working capital is an active part of the story. If 2026 combines working-capital pressure, CAPEX, dividend, and strategic execution in Brazil, the market will be much less patient with attractive operating explanations.

Conclusions

Strauss exits 2025 with a real operating recovery. International coffee, and especially Brazil, brought the group back to a growth and margin profile that looked much better than 2024. But this is still not a report of a group whose engines have all been fixed. Israel held the line through Health & Wellness and Coffee Israel, yet Snacks & Confectionery remained too weak. The cash and dividend layer also looks less comfortable than the free-cash-flow headline.

The current thesis in one line: Strauss proved in 2025 that it can return to growth and profitability, but 2026 still has to prove that the improvement can spread beyond Brazil and become more visible in accessible cash.

What changed versus the simpler reading of Strauss as a stable Israeli food company: in 2025 the company can no longer be read mainly through its Israeli brands. The group is moving more and more with the economics of international coffee, which means both upside and risk are more concentrated than they used to be.

The strongest counter-thesis is that the market is still too conservative: the company has already shown a 35.6% jump in management EBIT, the productivity target is advancing, cocoa has eased, and Yoki can turn Brazil into a broader food engine rather than only a coffee engine.

What could change the market's interpretation in the short to medium term: a real repair in Israeli Snacks & Confectionery, continued coffee margins without slippage, and proof that dividend, debt, and investment are not eating flexibility too quickly.

Why it matters: in a large consumer-food company, quality is not measured only by the strength of brands, but by the ability to turn growth into broader, more diversified, and more durable profit and cash. That is exactly the test Strauss has not fully passed yet.

What has to happen over the next 2 to 4 quarters for the thesis to strengthen: cocoa relief has to pass into Israeli margin, Coffee International has to keep holding profitability, and Yoki has to progress without putting early pressure on the financial structure. What would weaken the thesis is continued weak profitability in Israel, slippage in coffee, or further tightening in the cash picture.

---