Ulker Biskuvi Posts 45% Net Income Surge Despite Margin Pressure From Cocoa Costs

Ulker Biskuvi Sanayi, Turkey's dominant biscuit and confectionery maker, delivered a paradoxical quarter: net income jumped 45 percent year-on-year, yet the company's operating margins compressed sharply and revenue actually declined. The contradiction sits at the heart of what the company faces in 2026—a market so promotional and cost-pressured that profit growth masks underlying strain.

The numbers tell the story. Revenue fell to 27 billion Turkish lira from 30.5 billion a year earlier, a drop of 11.4 percent. The decline stems partly from inflation accounting rules that distort year-on-year comparisons, but also from real softness in domestic value growth as Turkish consumers, squeezed by affordability concerns, buy less. Gross margins shrank to 24.6 percent from 27.2 percent. More telling still, EBITDA margin—the measure of operating profitability before interest and taxes—collapsed to 10.4 percent from 14.6 percent. That is a 420-basis-point decline in a single quarter. The culprits are well understood: cocoa prices spiked in the first half of the year, and the Turkish market has become a promotional battleground where price cuts matter more than brand strength.

International operations bore the brunt. EBITDA margin in overseas markets fell to 5.2 percent, squeezed by aggressive competition in Central Asia and the ripple effects of Middle East geopolitical tensions—higher freight, logistics, insurance, and packaging costs that offset solid biscuit and cake sales elsewhere. Turkey's domestic biscuit volumes actually grew, up 3.7 percent in the quarter and 1.1 percent for the first half, with the company gaining share in both sweet and salty categories. But chocolate sales softened as the category normalized after an exceptional 2025 that included viral products like Dubai chocolate. Inventory days stretched to 123 days, a sign of supply timing pressures.

Management, led by CEO Ozgur Kolukfaki, framed the quarter as a temporary trough. The company is deliberately choosing to sustain market share and consumer engagement through promotional spending rather than chase margin in a hostile environment. Cocoa prices have moderated significantly from their peaks, but the benefit will not arrive immediately. The company works through long inventory cycles, meaning high-cost cocoa stock purchased months ago is still flowing through the P&L. Kolukfaki said the toughest part of the cocoa cost cycle was in the first half of the year, and that lower-cost inventory will provide relief gradually in the third and fourth quarters. He declined to specify the company's cocoa hedging ratios or inventory coverage, citing competitive sensitivity.

The company revised its full-year sales outlook downward, from flat to a low single-digit decline, citing increased inflation expectations and geopolitical uncertainty. Yet it reaffirmed its full-year EBITDA margin guidance of 13.5 percent, implying a significant rebound in the second half. That confidence rests on cocoa costs normalizing and the promotional intensity in Turkey easing as market conditions stabilize. The company also benefited from a tax rate reduction on manufacturing income to 12.4 percent effective January 2027, which created a deferred tax benefit in Q2, and from lower interest expense after refinancing debt at much lower rates on five-year terms.

What emerges is a company navigating a difficult but not unprecedented cycle. Ulker is the market leader in a price-sensitive, promotion-driven market where it has chosen to defend volume and share rather than margins. The cocoa cost shock was real and painful, but management believes it has passed the worst. The question for investors is whether the second-half margin recovery materializes as expected, or whether the promotional intensity and affordability pressures in Turkey prove more durable than management assumes. The next two quarters will answer that.