LA Private

Brambles’ third-quarter sales update

Brambles (ASX:BXB) shares fell around 7% in an immediate negative reaction to its third-quarter sales update, despite the company showing that it is on track to meet growth guidance for the year to June.

Brambles reported 9% growth in sales revenue from continuing operations of $US4,872.3 million for the first nine months of 2023-24 (7% in constant currency).

As the company had been guiding to sales revenue growth of between 6% and 8% in constant currency for 2023-24, the outcome was on track.

The shares recovered a touch to end the session Tuesday down nearly 5%.

But it would seem after higher prices helped the company report 12% sales growth in the six months to the end of December, investors immediately shouted ‘slowdown’ and sold.

The company said its third-quarter performance was impacted by a reduction in rollover contributions from prior-year pricing initiatives to recover the cost-to-serve in CHEP Americas and CHEP emerging markets.

It said that rollover pricing (that is, higher prices) contributed five percentage points to price growth, with pricing actions taken in the current year to recover the cost-to-serve delivering three percentage points of growth in both the nine-month and third-quarter periods.

This was down from an eight percentage points contribution during the first half so the boost from previous price rises coming through into the new period is slowing, which suggests the current June quarter might see something similar.

But Brambles reaffirmed the rest of its guidance for the year to June.

It says it still expects underlying profit growth of between 13% and 15% at constant currency, and positive free cash flow before dividends of between $US700 million and $US800 million.

It also expects its dividend payout ratio to be consistent with its dividend policy of paying out 45% to 60% of underlying profit after finance costs and tax.

Naturally, CEO Graham Chipchase was pleased with the quarter, saying in the statement that “Revenue growth was in line with expectations for the first nine months of FY24 as the rate of price growth continues to moderate in line with changes in our cost-to-serve and as we cycle higher prior-year pricing comparatives.

“Our year-to-date performance has given us the confidence to reconfirm our full-year guidance for revenue growth, strong operating leverage, and another year of improved free cash flow generation,” he added.