The Brambles Limited (ASX: BXB) share price will be one to watch on Wednesday morning.
This follows the release of the supply chain logistics company's half year results after the market close.
How did Brambles perform in the first half?
Brambles was a positive performer during the first half of FY 2021.
Management advised that COVID-19 and Brexit impacted the operating environment, driving elevated levels of demand for pallets. However, changes in consumer demand patterns and higher input costs resulted in operating cost increases.
According to the release, for the six months ended 31 December, Brambles reported a 7% increase in sales revenue to US$2,565.5 million. This was driven by strong volume growth and price realisation in the global Pallet businesses and the contribution from the commencement of a large Australian RPC contract. This offset COVID-19 related declines in Automotive and Kegstar businesses.
In respect to earnings, underlying operating profit increased 7% to US$465 million and profit after tax lifted 6% to US$295.2 million.
Also growing was the company's operating cash flow, which came in US$321.8 million higher at US$423.6 million. Management advised that this reflected higher earnings, a disciplined approach to capital expenditure, and some timing benefits in the first half of FY 2021.
This allowed the Brambles board to declare a 10 U.S. cents per share interim dividend. This represents a payout ratio of 50%, which is in line with Brambles' dividend policy to payout between 45% and 60% of underlying profit after finance costs and tax.
Management commentary
Brambles CEO, Graham Chipchase, was pleased with the half.
He commented: "We experienced elevated levels of demand in our key pallet businesses in the first half, as retailers raised inventories to accommodate increased levels of at-home consumption and to provide greater contingency against changes in consumer demand. There was also a noticeable shift within the consumer staples segment towards established, household brands which drove stronger volume growth with our largest customers."
"Operationally, COVID-19 related changes in network dynamics and customer demand patterns resulted in additional pallet collection and repair costs, with wage inflation in most regions increasing plant costs further. Our focus on optimising the use of our existing asset pool to service elevated levels of demand also contributed to higher plant and transport costs in the period and limited our investment in new pallets."
Outlook
The good news for shareholders, and the Brambles share price tomorrow, is that management has upgraded its FY 2021 guidance following its solid first half.
It now expects full year sales revenue growth of 4% to 6% in constant currency with improving profit margins. This is expected to lead to underlying profit growth of 5% to 7% in constant currency.
Mr Chipchase added: "The strong first-half result has allowed us to upgrade our FY21 sales revenue and earnings guidance. We remain committed to delivering Group Underlying Profit leverage and expect US margins to improve by approximately one percentage point, with the US automation programme on track for completion by the end of the fiscal year."
