Trump trade war could help Brambles as profit rises

The pallet giant’s boss says the threat of tariffs from US President Donald Trump could work in its favour, as Brambles recorded it's the first pick-up in business volumes in two years.

Brambles has increased business volumes for the first time in two years. Picture: Luis Enrique Ascui/Bloomberg

Brambles, the global logistics giant behind CHEP pallets, could emerge as a winner if a second Trump administration reshapes global supply chains through tariffs to put America first.

While the company’s core business — fast-moving consumer goods like food and beverages — is largely insulated from direct trade barriers, a shift in manufacturing activity could work in its favour.

Brambles chief executive Graham Chipchase told The Australian that while the threat of a global tariff war clouds the outlook for consumption and trade, he doesn’t expect a major impact on the company, which saw volume growth return in the December half after two years.

“We have got a very strong position in the US and therefore if all these tariffs did occur and that resulted in manufacturing improving significantly that would be a good thing for us,” he said.

“A tariff war will see countries have increased activity as people move into that country to manufacture more to avoid tariffs, and as a result, others will have lower activity. We’re in most countries, and therefore it should be a net zero-sum game for us.”

The ASX-listed logistics giant lifted its free cash flow outlook by $US100m and returned to volume growth for the first time in two years, tightening its grip on capital discipline amid shifting market conditions.

Market conditions in the US have pushed companies away from single-use whitewood pallets, boosting Brambles’ business. The company has also stepped up investment in sales capabilities and customer service, which it says is driving new customer wins.

Mr Chipchase said that while conditions improved in the US and Australia in the past half, Europe had been impacted by weak macroeconomic conditions.

“The last few years have been an anomaly when it comes to the general trends, because with all the shortages of lumber and inventory stocking,” he said.

“Now we’re seeing that these SME customers are beginning to convert from white wood to our pallets and start benefiting from the strength of our network across large countries like the US.”

Mr Chipchase also welcomed the decision by the Reserve Bank to cut interest rates on Tuesday as “supportive” for Brambles, though he noted the company was largely immune to interest rate movements.

Brambles says the outlook for cross border trade remains uncertain amid the threat of tariffs. Picture: Alex Coppel

Brambles is pressing ahead with digital transformation efforts, including trials of Serialisation+, a pallet-level tracking system using digital identifiers. While still in the testing phase in Chile, the US, and the UK, the technology is expected to improve supply chain visibility and reduce inefficiencies.

“We are taking a ‘test and learn’ approach to assessing the functionality of various solutions across different operating conditions, as well as the costs and benefits each solution provides,” Mr Chipchase said.

“Serialisation+ uses AI to analyse pallet movements, predicting where they will be for efficient recovery.”

The company increased its focus on asset efficiency, recovering 12 million pallets in the half, up from 7.5 million a year earlier, and reducing uncompensated pallet losses by $US68m. Capital expenditure was trimmed as the number of new pallets purchased fell by 1 million, helped by a 9 per cent drop in lumber prices.

Brambles, the world’s largest pallet pooling company, reported a 10 per cent increase in underlying profit to $US717.9m for the half-year to December, with sales revenue up 4 per cent to $US3.37bn.

Free cash flow before dividends surged $US118m, allowing Brambles to upgrade its full-year cash flow guidance to between $US850m and $US950m. Mr Chipchase said the company was not going to sit on the increased pool of funding and would deploy it.

“It does no one any good if we don’t touch it,” he said. “We’ll look at the opportunities to invest it internally, and Serialisation+ is one. After that, we’ll look to give it back to shareholders, either through a dividend or buyback.”

The on-market share buyback program is also progressing, with $US164m in shares repurchased in the half as part of a $US500m capital return plan.

Citi analyst Samuel Seow said the result was strong, with all segments reporting accelerating sales growth.

“Similar to the second half of the 2024 fiscal year, this appears a materially positive result with non-cash IPEP reduction driving material operating leverage and cash flow upgrades as well,” he said.

“Looking forward, we note interestingly FY guidance wasn’t upgraded, and margin contraction commentary will no doubt bring questions on sustainability of IPEP upgrades.”

Brambles declared an interim dividend of US19c a share, up 27 per cent on the prior period, with a payout ratio of 58 per cent supported by strong free cash generation.

Shares in Brambles rose 1.6 per cent to $19.93 in a lower market on Thursday.

Originally published as Trump trade war could help Brambles as profit rises