Brambles upgrades FY22 guidance against all odds

Thu 21 Apr 22, 10:35am (AEDT)
pallets logistics

Key Points

  • Brambles now expects FY22 profit growth of 6-7% (up from prev guidance of 3-5%)
  • Pricing actions helped offset surging lumber prices, cost inflation and pallet scarcity

Brambles (ASX: BXB) has upgraded its earnings for a second time this year as passing on higher prices to customers helped offset "extraordinary" timber and cost inflation.

The transport and logistics group said that sales volumes were broadly in-line with last year, as new business wins helped mitigate lower like-for-like volumes with existing customers.

Headwinds from all angles

Brambles chief executive Graham Chipchase said the upbeat sales performance in the third quarter was driven by "pricing actions in response to operating cost inflation, pallet scarcity and increased pallet costs driven by extraordinary lumber inflation."

The business was held back by an ongoing global pallet shortage, limiting the company's ability to secure net pallets for new and existing customers.

“The supply chain dynamics and inflationary pressures we noted in the first half of the year were further exacerbated in the third quarter by the conflict in Ukraine and Russia," said Chipchase.

A surprise upgrade

Brambles has earned itself an 8% morning rally after upgrading its FY22 guidance for a second time this year.

“Despite all these headwinds, the success of pricing and business efficiency initiatives supports the upgrade of our FY22 guidance for sales, earnings and Free Cash Flow after dividends," said Chipchase.

Brambles now expects: 

  • Revenue growth of 8-9% (previous guidance of 6-8%)

  • Underlying profit growth of 6-7% (previous guidance of 3-5%)

  • Free cash flow after dividends to be a net outflow of US$300-350 (previous guidance of US$350m)

Brambles reaffirmed the company’s dividend policy to put out between 45-60% of underlying profit. The upgraded profit guidance should inch dividends slightly higher. 

Lumber prices ease

Lumber prices fell sharply in the second-half of March to a 5-month low.

2022-04-21 10 15 50-Lumber - 2022 Data - 1978-2021 Historical - 2023 Forecast - Price - Quote - Char
Source: TradingEconomics

There are expectations that prices could face more pressure as supply chain bottlenecks ease and output volumes at sawmills improve.

Surging US mortgage rates could cool the red-hot US housing market, and reduce demand from infrastructure and property building sectors.

Brambles Ltd (ASX BXB) Share Price - Market Index
Brambles 12-month price chart


What brokers think

7 major Australian stockbrokers cover Brambles.

Consensus rates the stock as a Buy with a $11.50 target price.

Surprisingly, Credit Suisse released a note on Wednesday flagging that record lumber prices will reduce the likelihood of another guidance upgrade from Brambles.

The investment bank downgraded its full year earnings outlook for Brambles by -2%, taking into account the impact of lumber pricing and weaker Euro.

It looks like Credit Suisse analysts will have to go back to the drawing board after today's earnings upgrade.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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