Brambles shares rise on sales, forecasts

The logistics firm says it will reach the upper end of its guidance after the pandemic aided revenue gains in the first quarter.

Brambles chief executive Graham Chipchase

Shares in supply chain logistics giant Brambles have spiked as the company tightened its annual earnings guidance, after strong US consumer demand spurred a lift in first-quarter sales.

Brambles — which owns the ubiquitous CHEP pallets business — now expects underlying profit growth of 3-5 per cent, on a constant currency basis, for the 2021 financial year, with revenue tipped to lift 2-4 per cent.

Less than four weeks ago Brambles chief executive Graham Chipchase had told investors at its annual shareholder meeting that revenue would be in a range between last year’s $US4.73bn and a modest 4 per cent rise for the year, as COVID-19 hammers the global economy.

But on Tuesday he struck a decidedly more upbeat tone, saying stronger-than-expected demand for consumer staples, particularly in the US, had boosted first-quarter sales by 6 per cent to $US1.19bn ($1.7bn).

Shares in Brambles jumped more than 6 per cent on the news before closing up 5.7 per cent on Tuesday, at $10.10.

The result came as parts of the US began stocking up on essentials ahead of the holiday season and a potential second wave of COVID-19.

“Overall demand for pallets in grocery supply chains was strong during the first quarter notwithstanding variability in certain categories such as beverages, cleaning products and home DIY,” Mr Chipchase said.

“Pallet demand remained elevated in early October as customers and retailers increased inventory levels across the US in preparation for the holiday season and potential lockdown measures to contain a second wave of COVID-19 in these regions.

“We have noted some moderation in US issue volumes during the second half of October and we expect this variability to continue across our businesses for the remainder of the 2021 financial year.”

The first-quarter result was underpinned by revenue growth across CHEP’s American, European and Asia-Pacific markets.

US revenue grew 7 per cent, while European and Asia-Pacific grew by 2 per cent, with volume and price realisation supporting income streams.

Across the business, higher operational costs continue to be offset by larger margins.

“Operationally, unpredictable demand patterns and changing network dynamics continue to give rise to higher costs,” Mr Chipchase said.

“Labour shortages and scarcity in third-party transport, in part due to government stimulus packages in key regions, as well as elevated demand in the US lumber market resulted in inflationary cost pressures during the period.

“These cost pressures were, however, largely offset by higher pricing and surcharges.

“Our teams continue to focus on the delivery of strategic supply chain initiatives such as the US automation program and further productivity improvements across our operations to offset higher operating costs in this environment with the clear aim of delivering operating leverage in this financial year.”

Mr Chipchase said revenues in Brambles’ Kegstar beverages business remain temporarily subdued while pubs remain closed.

Kegstar, as well as Brambles’ automotive business, are collectively down approximately 20 per cent year on year, but up on last quarter — and represent around 5 per cent of total revenue.

At its full year results announcement in August Brambles recorded an underlying profit of $US795m ($1.13bn) on revenue of US$4.733bn ($6.71bn).

Brambles said its guidance was underpinned by a number of assumptions including a U-shaped economic recovery, stable input costs and a progressive recovery in the automotive and Kegstar businesses.

Macquarie analysts agreed with the assumptions and noted that the company is one of the few that has provided guidance in the broader market.

They were not “concerned by the near-term margin impacts from higher costs” as they are COVID-19 related.

“We continue to forecast +5 per cent average annual constant forex underlying profit growth and while it is trading around its five-year average, it is one of a few companies that has provided 2021 financial year guidance and has ongoing capital management,” the analysts wrote.

Brambles is predicting a dividend payout ratio of 45 to 60 per cent for the year, in line with its payout policy, while its share buyback program will continue “subject to the ongoing assessment of the group’s funding and liquidity requirements in the context of increased economic uncertainty”.

Analysts at Macquarie Research said the forecast was reasonable and “illustrates the resilience of the business despite ongoing COVID-19 disruption given the exposure to the fast moving consumer good segment.”