Brambles upgrades FY22 guidance against all odds

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.

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 12-month price chart