Brambles flags $US500m buyback as profit and cashflow jumps

Graham Chipchase has lifted Brambles to a record high after cashflow surged 77 per cent on better CHEP pallet control and signs destocking in the US is finished: $US500m buyback

Brambles is seeing signs of demand improvement at CHEP.

Brambles is Australia’s second global company in two days to predict the end of destocking in the US and parts of Europe, which is helping to push costs down and revenues up as more pallets with surplus stock sitting atop them are returned and re-ordered.

The world’s biggest pallet company on Wednesday posted a “stellar” 19 per cent rise in full-year profit to $US779.9m ($1.16bn) on the back of its recently introduced price rises and early signs of improving demand.

“We are beginning to think destocking has largely finished in the US and Europe, and we are seeing consumer confidence returning and good volume growth,” Brambles chief executive Graham Chipchase said.

With the US Democratic Convention in full swing, Mr Chipchase predicted demand would not be markedly affected by who won the next election, adding that former president Donald Trump’s proposed tariffs on imports would only “help a tiny bit” for Brambles because most of its pallets were for intra-country use.

The Americas is Brambles biggest market and US consumers have proved remarkably resilient in the face of high inflation this year, with retail sales rising 1 per cent last month. This has meant factories and distribution centres have been able to sell down surplus stock ordered during the Covid-19 pandemic.

It’s a trend also picked up by specialist glove and protective safety wear maker Ansell, which predicted that destocking was now over and demand was showing early signs of improving.

Fund manager John Ayoub from Wilson Asset Management said these global Australian companies might now see a return to “normal” after three years of ­surging and then plummeting ­demand.

“This is the cleanest, strongest result we’ve seen from Brambles for a very long time,” Mr Ayoub said, adding it would be the best in a decade from the company his firm was “very happy” to hold.

Brambles shares surged more than 9 per cent to an all-time high of $17.51 on Wednesday as investors lapped up its cash flow turnaround and strong profit.

The world’s biggest pallet company makes its money renting out its forklift-ready blocks through a pool system to transport goods on.

The company announced a 77 per cent improve­ment to cashflow in 2024 largely due to tighter controls on its pallets and faster returns to the pool.

Brambles’ cashflow declined when the manic pandemic ordering slowed up and companies were left with surplus stock sitting on CHEP pallets, which in turn meant Brambles needed to spend money making new ones.

Daniel Moore, portfolio manager with Investors Mutual, one of Brambles’ biggest shareholders, said it was a “stellar ­result,” particularly the improve­ment in cashflow.

“This has historically been a perennial issue for the company,” Mr Moore said. “Management has done a great job tackling this issue by improving pallet loss, pallet repair and pallet utilisation through their digital and automation investments.”

Due to confidence in the cashflow outlook, Brambles also announced an increase in the dividend payout ratio to 50-70 per cent of earnings and a $US500m buyback.

Mr Chipchase said the company would consider further capital management options this year.

Brambles has more than 347 million pallets, crates and containers – mainly under the CHEP brand – that are used to transport everything from market foods to clothing across the world.

The company’s underlying earnings jumped 19 per cent to $US1.13bn with sales revenue from continuing operations up 8 per cent at $US6.5bn in line with market expectations.

The company will pay a final dividend of US19c a share, taking the total for the year to US34c.