Strauss Group in the first quarter: margins recovered, cash still has to prove it
Strauss Group opened 2026 with record management EBIT and a sharp recovery in snacks, confectionery and international coffee, but management free cash flow remained negative and the cash balance rose mainly after a debt raise. The quarter changes the 2026 test: less about whether margins can rebound, more about whether the rebound can hold and turn into accessible cash.
Strauss Group opened 2026 with a quarter that answers an important part of the doubt left by the annual report: the margin recovery is now in the numbers, not only in the presentation. Management EBIT rose to NIS 316 million, the management EBIT margin increased to 10.5%, and snacks and confectionery moved from an operating loss to an operating profit of NIS 40 million. International coffee also returned to a double-digit margin, even though its sales declined because of lower selling prices in Brazil and the stronger shekel. But the quarter does not close the 2026 test: management free cash flow remained negative, the cash balance rose mainly after a bond issuance, and Brazil is showing stronger profit while Três Corações still recorded negative operating cash flow. The quarter therefore changes the proof point. The issue is less whether margins can rebound, and more whether they can hold in less favorable quarters, pass through working capital, and become usable cash without another reliance on the debt market.
A Margin Machine, Not A Fast-Growth Story
The company is a food and beverage group with three main profit centers: Israel, international coffee, and water. In the first quarter, the Israel operation accounted for about 49% of group sales on a management basis, international coffee for about 44%, and water for about 7%. That is a broad activity map, but this quarter comes down to one point: sales barely moved, while profitability changed sharply.
Management sales were NIS 3.001 billion, up only 0.4%, or 2.5% excluding currency effects. Management gross profit rose 22.6% to NIS 957 million, and the gross margin rose from 26.1% to 31.9%. Management EBIT rose 67.9% to NIS 316 million. This was a quarter in which raw materials, pricing actions, currency and hedging mattered far more than top-line growth.
The chart shows why this was not a uniform group-wide improvement. Health and wellness and Israel coffee improved modestly, while water EBIT fell from NIS 26 million to NIS 17 million. Most of the change came from two sources: snacks and confectionery and international coffee. The quarter is strong, but it also depends on continued proof from two specific engines.
Snacks And Brazil Brought EBIT Back
The sharpest local test was in snacks and confectionery. Sales rose 8.5% to NIS 428 million, cost of sales fell from NIS 322 million to NIS 293 million, and the activity moved from an operating loss of NIS 16 million to an operating profit of NIS 40 million. The EBIT margin reached 9.5%, after negative 4.2% in the corresponding quarter.
The comparison benefits from a weak base. In the first quarter of 2025, the company recorded a loss of about NIS 49 million from cocoa commodity derivatives that was included in management cost of sales. The company attributes the improvement also to that factor, to pricing actions, to the stronger shekel and to operating improvement, and notes that the improvement exists even excluding those cocoa losses. That distinction matters after the focused cocoa exposure analysis: the quarter is not only the disappearance of last year's noise, but it is also not full proof of a new profit base. The company itself notes that snacks and confectionery sales are usually higher in the first third of the year because of winter, Purim and Passover, and lower in the second third.
International coffee supplied the second profit engine. Management sales declined 4.7% to NIS 1.322 billion, mainly because of the stronger shekel and lower selling prices in Brazil after lower green coffee prices. Despite that, segment EBIT rose from NIS 55 million to NIS 132 million, and the EBIT margin rose from 3.9% to 10.0%. At Três Corações, sales in Brazilian reais fell 5.8%, but the gross margin rose from 15.0% to 24.1%, and operating profit before other items rose from R$48 million to R$155 million.
The constraint sits in cash and access to value. Três Corações recorded net income of about R$239 million in the quarter, but operating cash flow was negative by about R$214 million. Net debt rose from about R$382 million at the end of 2025 to about R$671 million at the end of March 2026. At the same time, Três Corações signed an agreement to acquire the Yoki and Kitano operations at a value of R$800 million, subject to price adjustments and CADE approval. Brazil proved margin, but it has not yet proved that this value moves easily up to the parent group. That was the open issue after the previous Brazil analysis, and now it has fresher numbers.
Cash Improved, But The Balance Relies On Debt
Group cash flow improved significantly compared with 2025, but it still does not match EBIT. Management operating cash flow was NIS 101 million, compared with negative NIS 347 million in the corresponding quarter. Management free cash flow improved by NIS 449 million, but was still negative NIS 46 million after net capex of NIS 147 million. This is an all-in cash picture after investments, not a normalized maintenance-cash estimate.
The balance sheet highlights the gap between a large cash balance and operating surplus. Consolidated cash rose to NIS 1.047 billion at the end of March, from NIS 535 million at the end of 2025. But in January the company issued an expansion of Series F bonds with NIS 671.5 million par value and received net proceeds of about NIS 588 million. Consolidated financing cash flow was positive NIS 495 million, while the board had already approved a NIS 250 million dividend that was paid in April.
Net debt is not stretched: management net debt to EBITDA fell to 1.5x, and the GAAP ratio was 1.6x. The company complies with its financial covenants, and its ratings remained high and stable. Still, the 2026 cash test is not access to the debt market. It is the ability to fund stronger profitability after working capital, capex and dividends. Supplier financing also shows that working capital has not disappeared from the thesis: suppliers that sold receivables from the company in international coffee stood at about NIS 499 million at the end of March, compared with about NIS 384 million in the corresponding quarter.
The 2026 Test Moves To The Next Quarters
The first quarter makes 2026 a more precise proof year. Previously, the company still had to show whether it could restore margins after a year in which cocoa, Brazil and working capital blurred the picture. Now there is a first proof point that margins can recover. From here, the key checks are snacks and confectionery margin in less seasonal quarters, Brazil turning profit into cash around Yoki, and positive free cash flow without another debt-market support.
There are also near-term items that should stay in proportion. The insurance process related to the recall may lead to NIS 27 million of insurance income in the second quarter if no appeal is filed by the set date, but that is a one-off help rather than proof of recurring profitability. Water grew sales but declined in EBIT because of the war impact in Israel, investments in development and sales channels, and lower HSW contribution in China due to competition. The first quarter is therefore more positive than the end of 2025, but it still needs proof: less headline focus on record EBIT, and more earnings quality, working capital, and cash that actually reaches shareholders.
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