Brambles warns on global headwinds after first-quarter sales lift

The pallets maker retained its annual outlook but expects growth to moderate in second half as global uncertainties weigh.

Brambles CEO Graham Chipchase

Pallets and crates giant Brambles has delivered a lift in first-quarter sales revenue on the back of inflation-driven price increases, but expects growth to moderate in the second quarter amid global uncertainties.

Brambles retained annual earnings guidance as it revealed first-quarter sales revenue from continuing operations rose 6 per cent to $US1.5bn on actual forex rates.

At constant forex rates, sales revenue growth of 14 per cent was driven by price realisation to recover input-cost inflation and other cost-to-serve increases in all regions.

“This performance was driven by a combination of the rollover benefit of strong pricing in the prior year, as well as pricing actions taken in the first quarter across the group,” Brambles said.

“Group volumes were broadly in line with the prior year as growth with new and existing customers was constrained by pallet availability with elevated inventory levels across supply chains continuing to impact pallet cycle times and return rates in all regions.”

Underlying demand moderated in the US and in some parts of Europe due to challenging macroeconomic conditions.

The group’s American sales revenue grew 16 per cent on a constant currency basis despite volume declines of 2 per cent due to pallet availability constraints.

Sales revenue and volume growth was recorded for the Europe, Middle East and Africa markets as well as the Asia Pacific region.

Subject to market conditions, the group reconfirmed its FY23 guidance on a constant currency basis.

Sales revenue growth is tipped to grow between 7-10 per cent with underlying profit growth of between 8-11 per cent, including about $US25m of short-term transformation costs.

But Brambles chief executive Graham Chipchase said “while the business delivered strong first-quarter sales revenue growth and we continue to expect growth across the balance of the year, the growth rate in the second half of the year is likely to moderate given the strong pricing in the prior-year comparative period and potential impacts of macroeconomic uncertainties in the balance of the year.

“In these challenging operating conditions, customer retention rates remain strong and we are prioritising the service of existing customers. Our teams around the world continue to accelerate asset efficiency initiatives to improve pallet availability and the productivity of our existing pallet pool.”

Annual free cash flow after dividends is expected improve on FY22, but remain a net outflow, and net payout ratio will be stable at 45-60 per cent of underlying profit after finance costs and taxes.

“The level of underlying improvement is dependent on lumber and pallet pricing, normalisation of inventory levels and flows across global supply chain and other productivity improvements in the asset pool,” Brambles said.

Mr Chipchase said the strong momentum generated in FY22 continued in the first quarter.

“Consistent with our experience in the prior year, we continue to face inflationary pressures across key inputs including lumber, labour, transport and fuel. Across the group, our first quarter weighted average price per pallet remained above FY22 levels.

“We expect these dynamics to result in a higher FY23 weighted average cost per pallet compared to FY22, reflecting regional mix impacts with ongoing unit pallet price increases most notable in Latin America and Europe.”

Brambles has reconfirmed its FY23 guidance on a constant currency basis. Picture: Luis Enrique Ascui/Bloomberg