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Is the worst over for the Brambles share price?

Global logistics group Brambles Limited (ASX: BXB) is hoping to convince investors that it’s finally overcome last year’s headwinds as it posted its first half profit results this morning.

The BXB share price had fallen out of favour for most of 2018 due to a sharp rise in input costs, its lack of operational leverage and customer issues (particularly its CHEP Americas pallet business).

But the Brambles share price is carrying the weight of expectations and I won’t be surprised to see the stock suffer a bout of profit taking. The market is already pricing in some of the good news from the recovery with the stock rallying 11% since the start of the year when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up 7%.

Sales growth, margin squeeze

Management will be hoping to keep investors onside as it posted a respectable 7% jump in revenue to US$2.9 billion in constant currency terms with operating profit improving 1% to US$499 million for the six months ended December 2018.

Bramables also declared an interim dividend of 14.5 cents per share, which is flat on last year, although the franking component is up at 65% versus 30% in the last corresponding period.

Sceptics might bemoan the ongoing lack of operating leverage in the business where profit growth should outpace revenue growth due to the relatively high fixed-cost base of such businesses.

But management is promising better days ahead although shareholders may have to wait a little longer for it. The company said that underlying profit will grow ahead of sales “through-the-cycle” due to cost cuts and other efficiency programs.

The modest increase in profit is driven by persistent cost inflation and these cost pressures aren’t expected to reverse, although management believes its efficiency drive and price increases for its services will more than offset rising costs over the medium-term.

Those looking for more concrete signs of expanding margins may be disappointed but at least demand for Brambles services seem to be growing strongly.

Management expects FY19 sales growth to be in the mid-single digit due to increased demand from existing customers, conversion of new customers to pooled solutions and expansion into new markets.

Foolish takeaway

I think Brambles looks attractive over the medium to longer term as it seems to have turned a corner. As long as we don’t get any Black Swan events, the stock also offers exposure to the US dollar and to the American consumer.

This isn’t the only stock that offers leverage to the US currency and market that I like. The Reliance Worldwide Corporation Ltd (ASX: RWC) share price and Aristocrat Leisure Limited (ASX: ALL) share price are among my top picks for 2019.

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Motley Fool contributor Brendon Lau owns shares of Aristocrat Leisure Ltd., Brambles Limited, and Reliance Worldwide Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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