The Brambles Limited (ASX: BXB) share price will be under the spotlight tomorrow after it unveiled its full year profit results after the market closed.
The logistics group could find favour with investors as it managed to deliver sales and earnings growth despite the COVID-19 market meltdown.
Brambles delivers profit and sales growth
Group revenue came in at US$4.73 billion ($6.52 billion) in FY20, which is 6% ahead of last year in constant currency terms. Its adjusted net profit of US$477.2 million was 11% above FY19 if you ignored the exchange rate.
Management also declared a final dividend of US9 cents a share, which converts to 12.54 cents (franked at 30%). That's a cut from last year's 14.5 cents per share payout.
A change in accounting standards from AASB 16 takes some of the gloss off the results too. This change contributed to around 3 percentage points to underlying profit growth.
The stronger US dollar hurts its earnings as all its income is reported in US dollar. Sales growth would halve otherwise to 3% while net profit growth would only hit 5%.
Marginal profit issue could save Brambles' share price
However, I think the market will overlook this small negative given that the results imply stronger margins – regardless of how you treat the exchange rate.
It's hard enough to grow both top and bottom lines amid the largest economic disruption in living memory, let alone lift margins.
What's more, most currency forecasters are expecting the US dollar to weaken through to 2021, which will suit Brambles well.
COVID-19 a double-edged sword for BXB share price
The COVID-19 pandemic was both a blessing and a curse to Brambles. Its main business is to provide pallets and logistic services to supermarkets and other consumer staple retailers.
Demand for food and other household products surged during the onset of pandemic in March. That's good news for Brambles if not for the fact that it left the group scrambling to meet volatile demand.
Meanwhile, the virus outbreak had a big negative impact on Brambles' Automotive containers and Kegstar keg-pooling businesses. No one was buying cars in the sharp and sudden downturn, while lockdowns forced pubs to shutter. Luckily, these businesses only account for around 5% of group revenue.
Cold water on good result
However, the thing that might disappoint shareholders is the lack of a V-shape earnings recovery for the group. Management believes that on a constant currency basis, revenue will be anywhere between flat and +4%, while underlying profit will range from zero to +5%.
For a stock that's trading on a price-earnings multiple of 26.5 times, the prospect of zero growth in FY21 could spook investors.
On the other hand, one has to wonder if management is being too conservative. The group is leveraged to economic activity, and economists are tipping a decent if not substantial rebound in the global economy within the next 12 months.
It's hard to imagine Brambles posting no or low single-digit growth in such a scenario.
