Brambles beats inflation but cautious on slowing economy

Transport and logistics heavyweight Brambles (ASX: BXB) reported 14% sales growth in the first quarter of FY23 as it continues to flex its pricing power in the pallets, crates and containers industry.

The still-solid growth was driven by a combination of the 'rollover benefit of strong pricing in the prior year' in addition to further pricing actions taken in the first quarter.

By segment, first quarter sales revenue was (at constant currency):

• Americas: Sales revenue increased 16%, reflecting an 18% increase in rollover pricing actions from the second half of FY22. Volumes decreased by 2% due to pallet availability constraints and softening volumes

• EMEA: Sales revenue rose 14% which included price growth of 10% and volume growth of 4%. Volume growth was attributed to the rollover benefit of prior year customer contract wins

• Asia-Pacific: Sales revenue growth of 9% due to 5% price growth and 4% volume growth. Volume growth reflected the expansion of existing customers in the pallet businesses and growth in New Zealand

As you can see, price realisation has been the primary driver of growth. Especially in the Americas, where in the absence of pricing actions, growth would have been negative.

Growth expected to moderate

Notable quotes from CEO Graham Chipchase.

Inflation remains sticky: "Consistent with our experience in the prior year, we continue to face inflationary pressures across key inputs including lumber, labour, transport and fuel. Across the Group, our first quarter weighted average price per pallet remained above FY22 levels."

Stalling volume growth: "Our volume growth with new and existing customers continues to be impacted by lower pallet return rates and longer cycle times as retailers and manufacturers hold higher levels of inventory to de-risk their supply chains."

Growth to moderate in 2H: "... we continue to expect growth across the balance of the year, the growth rate in the second half of the year is likely to moderate given the strong pricing in the prior-year comparative period."

A lag in impact: "While there are signals which point to a slowing global economy, we are yet to see the full impact of cost-of-living pressures and the European energy crisis on both consumer demand patterns."

FY23 outlook

Brambles reaffirmed its FY23 guidance which included 7-10% revenue growth at constant currency and underlying profit growth between 8-11%.

The company noted that free cash flow after dividends is expected to remain negative but subject lumber and pallet pricing, and the normalisation of inventory levels.

Brambles shares are trading 0.7% in early trade. It's share price performance has held true to its defensive status, up 8.3% year-to-date.

Brambles share price chart