Brambles chief Tom Gorman ‘embarrassed’ by profit warning

Brambles shares have closed more than 15pc lower after it downgraded profit guidance for 2017.

A worker uses a forklift to stack Brambles' CHEP pallets. Picture: Luis Enrique Ascui/Bloomberg.

Brambles chief executive Tom Gorman said he was “embarrassed” by this morning’s profit warning, which comes only a month before his departure from the company and has sent the company’s shares down more than 15 per cent.

“Walking away from something I thought we could deliver is embarrassing,’’ Mr Gorman told analysts.

The pallet pooling group’s share price slide comes after chief executive he warned that its customers in the fast moving consumer goods (FMCG) sector were taking longer to commit to new contracts, which had hit revenues and profits.

The company warned this morning that underlying profit growth for fiscal 2017 in constant currency would miss its guidance of 9 per cent to 11 per cent amid widespread destocking by US retailers during the month of December. Profit growth was just 3 per cent in the first half.

It also said annual sales growth will miss its guidance of 7 per cent to 9 per cent growth after growing only 5 per cent during the first half.

Mr Gorman said the impact of retailer destocking was most significant at the back end of December.

“These are market events that we simply did not anticipate . . . When we see destocking, that means that forward expectations for demand are declining,’’ he told analysts this morning.

He also said the company had seen deferral of potential customer conversions to pooling in North America and pricing pressure across its recycled pallet operations.

By the cloe of trade, Brambles had slumped 15.8 per cent to $10.34, paring losses from an earlier 17.59 per cent fall. The shares had risen just over 10 per cent in the past year, hitting a 12-month high of $13.60 last July.

Mr Gorman will step aside next month to be replaced by former UK executive Graham Chipchase, and said this morning that “this could not come at a worse possible time for me personally.’’

“We have been given guidance since 2011. The market is comfortable with us meeting that guidance... We have been as candid and direct with the market as we can be,’’ he said.

“Some of the costs that occurred in the period are not going to be recovered in the full year... We are not going to get back the money spent in the second quarter of the first half.’’

The company also said that the first half result included a small loss arising from the HFG joint venture, which continues to operate in challenging market conditions.

Due to its recent financial performance an impairment review of the HFG is underway.

Meanwhile, Moody’s reaffirmed Brambles Baa1 debt rating with a stable outlook, with no impact from the profit warning.

“While this is negative news, Brambles will still report first-half revenue growth in every operating segment and underlying profit growth across the group, with the exception of its North America pallets business,” said Ian Chitterer, a Moody’s Vice President and Senior Analyst.

Mr Gorman (pictured) will step aside next month to be replaced by former UK executive Graham Chipchase. Picture by Renee Nowytarger /The Australian.