Shares in Brambles (BXB) took a hit yesterday after the company revealed a surprise downgrade to full year earnings after a weak six months to December 31.
The shares fell more than 16% on the news of the downgrade to $10.40, the lowest the shares have been in 11 months (an intra day low of $10.22 was hit yesterday). The shares ended down 15.7% at $10.34
It’s not that earnings fell, its just that the growth was not up to expectations, with the current weakness in some areas of US retailing having a direct impact on Brambles, along a weak sales efforts in pallets and an underperforming joint venture.
Brambles says that, taking into account currency fluctuations – 60% of the group’s revenue is generated in currencies other than the US dollar – it expects first-half sales revenue will be up 5% and underlying profit will be up 3%.
The supply chain logistics group said that in light of those results it expects full-year results to be below its previous guidance range of 7% to 9% for sales revenue and 9%-11% for underlying profit.
The company is best known for its CHEP pallets and IFCO reusable containers used by a range of retailers and wholesalers.
Chief executive Tom Gorman said US retailer destocking, which predominantly occurred towards the end of the half, pushed up costs and depressed revenue for the North American division.
“In the first half, we delivered sales revenue growth in every operating segment and, with the exception of our North America pallets business, we delivered Underlying Profit growth across the Group.
“In our North America pallets business, we experienced some revenue and cost pressures during the back end of the first half. These pressures were partly due to US retailer destocking which impacted volumes and resulted in increased transport and plant costs associated with higher-than-expected pallet returns. In addition, we have continued to see a deferral of potential customer conversions to pooling in North America and pricing pressure across our recycled pallet operations.
“Our first-half result also includes a small loss arising from our investment in the HFG joint venture, which continues to operate in challenging market conditions. Due to its recent financial performance an impairment review of our investment in HFG is underway.
“Notwithstanding these challenges, the fundamentals of our business remain strong and we are focused on driving improvement actions in the second-half of the year. We will provide updated full-year guidance as part of our half- year result announcement on 20 February 2017, which will take into account our final half-year results and an assessment of January trading volumes.”
