Pallets and logistics giant Brambles lifted US prices by 19% in the past nine months, and its chief executive said there were signs that timber and transport inflation were starting to moderate. Source: Australian Financial Review
Graham Chipchase said Brambles, which operates a pool of 360 million pallets and containers transporting goods to retailers, had been highly disciplined in recovering costs.
The growth in prices was in its biggest business, known as CHEP Americas. That did not include special surcharge contributions.
For the nine months ended March 31, Brambles generated total sales revenue of US$4.48 billion ($6.68 billion) compared with US$4.04 billion for the same period a year earlier. On an actual currency basis, that represented a rise in sales of 9%, and on a constant currency basis it was a 15% climb.
“This sales performance reflects our ongoing pricing discipline to recover cost-to-serve increases in all regions,” he said.
In the Asia-Pacific region, where Australia is one of Brambles’ biggest businesses, sales revenue was up 10% on a constant currency basis. The company said this stemmed from price increases and like-for-like volume growth in the Australian operations.
The company lifted its full-year profit forecasts marginally. Underlying profit growth is expected to be between 17% and 19% on a constant currency basis for 2022-23, up slightly from the previous band of 15% to 18%.
Mr Chipchase said timber and transport costs started to moderate but were still at high levels in the March quarter.
Brambles shares gained 1.6% in morning trade before ending flat at $13.91. The stock has climbed steadily from $11.50 on January 10.
UBS analyst Andre Fromyhr said the March quarter update from Brambles was “unambiguously positive”. He said the stock price had already run up strongly over the past few weeks in expectation of positive news.
UBS has a 12-month price target of $15.50 on the stock. Mr Fromyhr said he expected conditions in the pallet sector to gradually return to normal in 2023-24and 2024-25, with the high pricing and pallet hoarding to ease.
Mr Chipchase said Brambles recommenced chasing new business in the US and Europe as pallet availability slowly began to improve. He said about two million pallets returned to its global networks in the March quarter. Retailers hoarded extra pallets during the pandemic as they lifted inventory levels in warehouses and distribution centres to try to prevent product shortages on the shelves after heavy supply chain disruption.
But the rate of those returns isn’t quite as fast as Brambles had previously signalled. In February, Mr Chipchase expected Brambles would benefit from about six million pallets being returned to its network in the June half. On Thursday, he said that would now likely only be four million to five million extra pallets.
Softer economic conditions in Europe tempered demand in the group’s Europe and Middle East business, where like-for-like volumes were down by 1%.
Brambles was equally aggressive though in clawing back inflation, with price rises of 12% and overall volume growth of 3%.
Brambles on June 30 last year announced it would not proceed with an investment of more than $1 billion in a pool of plastic pallets for Costco’s 570-plus warehouse stores in the US after an extensive trial period. It decided to stick to using wooden pallets only. Costco is moving to plastic pallets because of the high number of injuries from splinters to both staff and customers in its store aisles where products are stacked high.
