* Q1 sales rev down 0.6 pct to 1.25 bln CHF vs f'cast 1.38 bln
* Co cites lower sale prices for ingredients such as cocoa butter
* Sales volume beats expectations, up 8.4 pct at 388,170 tonnes
* High internal demand limits cocoa powder sales
* Shares down 1.7 pct, underperform sector
ZURICH, Jan 16 Barry Callebaut, the world's biggest maker of chocolate and cocoa products, reported lower-than-expected quarterly revenue on Wednesday as its ingredients business was squeezed by weak prices resulting from global oversupply.
The Swiss-based group, whose main business is making chocolate for the likes of Nestle and Hershey, said sales revenue fell 0.6 percent to 1.25 billion francs ($1.4 billion), short of a forecast for 1.38 billion in a Reuters poll.
Lower sale prices for cocoa ingredients such as cocoa butter, liquor and powder hit revenue at its global sourcing and cocoa business, which fell 13.1 percent to 262.9 million francs in the company's first quarter from September to November.
"While the weak sales figure might be cause for concern, it is worth noting ... the cocoa ingredient contracts were agreed six months ago when ingredients (prices) were weaker," said Kepler Capital Markets analyst Jon Cox.
Barry Callebaut shares were down 1.7 percent at 894.5 francs by 0907 GMT, underperforming a slightly firmer European food and beverages index. The stock had spiked higher on Tuesday on the back of strong sales from Lindt & Spruengli
Global cocoa product prices were depressed last year by the introduction of additional capacity in anticipation of growing Asian demand.
However, Barry Callebaut's sales volume beat expectations with an 8.3 percent rise to 388,160 tonnes. The group said volume growth was driven by rising emerging market demand, as well as higher sales in its main business of supplying major food companies.
Chocolate makers have seen an improvement in demand for their products as cash-strapped Europeans seek solace in sweet treats. And there are signs that Callebaut is outperforming this strong market trend.
Compared with an estimate from consumer trends consultant Nielsen that the global chocolate market grew 1.1 percent from September to November, Barry Callebaut saw revenue rise 1.6 percent in Europe, 6.3 percent in the Americas and 8 percent in the Asia-Pacific region.
However, the performance of the sourcing and cocoa unit was dented by the need to halt operations at some of its factories as part of expansion plans to add additional capacity. And internal demand for cocoa powder to feed the business making chocolate for other firms limited sales to third parties.
Chief Executive Juergen Steinemann told Reuters the deal Barry Callebaut announced last month to buy the cocoa business of Singapore group Petra Foods, which will make it the world's biggest processor of cocoa, should ensure this does not happen in future.
"There was huge demand for semi-finished goods internally, which meant we had limited volumes available for selling to third parties," Steinemann said in a telephone interview.
"With the acquisition of Petra Foods' cocoa ingredient division, this will not happen again, because we have abundant volume for semi-finished cocoa products in the future."
Chief Financial Officer Victor Balli said the company was sticking to a plan to finance the deal with $300 million of equity and the rest with debt, which the company would raise around the closing of the transaction, expected in summer.
Sarasin analyst Patrick Hasenboehler noted the integration risks of the Petra deal despite Barry's growth prospects.
"The planned capital increase is likely to be a drag on the share price during the coming months," Hasenboehler said.
Balli said Barry Callebaut expects the cocoa price to stay flat for the time being and possibly move higher in future. "We are not seeing a significant change from a sideways trend."
The firm confirmed its medium-term growth targets, which aim for average volume growth of between 6 and 8 percent and growth earnings before interest and tax (EBIT) in local currencies at least in line with that through to its 2014/2015 financial year.