Brambles books 17pc uplift in profit to $US392.1m in December half and upgrades dividend

The pallets and logistics group has upgraded its full-year guidance as it sees further signs of deflation in the supply chain and after 8 million pallets returned to the network.

Pallets and logistics business Brambles is targeting new customers in Europe and North American as 8 million pallets hoarded by customers during the pandemic are returned to the network, with an economic slowdown resulting in customers adjusting inventory levels.

The group also upgraded its full-year profit guidance on Friday as it benefited from deflation in lumber prices because of a lack of homebuilding, to beat expectations in the December half.

In North America and Europe, it had an extra 8 million pallets come back into its network and expected that inventory optimisation of its clients to be largely completed by the end of the current fiscal year with 5-6 million returns expected in the second half.

Brambles chief executive Graham Chipchase said customers were not holding as much stock as they had during the pandemic when supply chain disruptions resulted in a shift from a “just in time” to a “just in case” mindset.

“This is impacting our organic sales volumes because customers are putting stuff through their manufacturing processes and onto the supermarket shelf from inventory, not by ordering new products on our pallets,” he said.

Mr Chipchase said the increased optimisation had not had a huge impact on the company because while there was destocking because of macroeconomic factors, 80 per cent of its pallets were used for food, beverages and everyday items that people still needed.

Brambles increased its interim dividend payout by 22 per cent for the six months to December 31, following an 18 per cent lift in net profit to $US391.3m ($595.7m) – which was more than the $US384.9m markets had expected. Sales revenue in the period increased 12 per cent to $3.28bn.

While Brambles still expected revenue to rise 6-8 per cent on a constant currency basis, it now forecast a 13-15 per cent increase in underlying profit for the 2024 fiscal year, compared to 9-12 per cent previously. Positive free cashflow before dividends was set to be $US700m-$US800m, compared with $US450m-$US550m previously.

Mr Chipchase said the company would benefit from businesses shifting manufacturing closer to home instead of across continents as many looked to avoid conflicts and supply chain disruption.

“The US is a really good example where you see a lot more manufacturers moving their locations to Mexico, so they can deliver into the US without having to go across the sea and worry about Taiwan or the Red Sea,” he said.

“That’s good for our business because we don’t put pallets from one continent to another.”

While the group experienced year-on-year increases in labour inflation, this was partially offset by deflation in global fuel and lumber prices as well as US third-party freight rates.

Mr Chipchase said the lack of homebuilding in many markets had helped to drive down the price of lumber, which translated to a reduction in the capital cost of pallets in all regions, albeit these remained well above historical averages.

“Over the last three or four years, lumber prices have gone up about 300 per cent, so the deflation we’ve seen in the last 18 months has taken it down significantly,” he said.

“We’re probably still about 30 per cent higher than we were when we hit the low point four or five years ago, so our view is it’s stabilising the lumber price but ­effectively with the right factors which are out of our control it might still come down a bit more.”

He said Brambles was focused on driving profitable volume growth in Europe and North America and, while new business momentum was gathering pace, growth with new customers was slower than expected due to the time it took manufacturers to convert to pooling.

“This was primarily due to whitewood pricing deflation, which provides an incentive for these businesses to delay, but not stop, an eventual move to pooling. In addition, certain customers dual sourcing a small portion of their pallet volumes has, to a lesser extent, impacted net new business volumes,” he said.

The interim dividend increased from US12.25c a year ago to US15c a share.

Brambles shares rose 0.6 per cent to $15.27 on Friday.