Shares in Brambles Limited (ASX: BXB) edged lower on Friday after the company released its interim report and financial results for the half-year ended 31 December 2021.
At market close, the Brambles share price finished down 0.81% at $9.81 apiece.
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Brambles share price tanks as profit lands ahead of guidance
Key takeouts from the company's earnings results today include:
- Sales revenue growth of 8% and Underlying Profit growth of 4%, ahead of FY22 guidance
- Underlying Profit included US$24.4 million of short-term transformation costs associated with the 'Shaping Our Future programme'
- Excluding short-term transformation costs, Underlying Profit increased 9% and included small use of leverage
- Cash Flow from Operations decreased US$260.5 million
- Free Cash Flow after dividends decreased by US$311.7 million
- Declared an increased FY22 interim dividend of 10.75 US cents up from 1H21 dividend of US10 cents
- A $2.4 billion share buyback program to recommence on 28 February 2022 and expected to complete in FY22
What happened this half for Brambles?
Brambles says that revenue growth this half was underscored by "price realisation in all regions to recover inflationary cost pressures and other cost to-serve increases".
The company also realised a lower cash flow from operations that decreased to US$260.5 million. The decline was attributed to higher lumber costs of US$270 million whilst another US$80 million of pallet purchases was deferred from FY21 due to supply constraints.
Brambles was also decisive in its response to supply chain pressures that were brought on by the global pandemic, resulting in cost blowouts for major industry.
"In response to supply chain challenges and scarcity of critical inputs, manufacturers and retailers increased inventory levels to de-risk their supply chains, which has resulted in increased demand for pallets and included empty pallet stockpiling across the supply chain", the company said.
"This increase in inventory levels and pallet stockpiling, especially evident in Europe and Australia, combined with ongoing lumber scarcity and new pallet supply constraints, further exacerbated industry-wide pallet shortages".
Sales revenue came in at US$2.77 billion and increased 8% year over year. Brambles achieved this by passing price increases downstream to recover higher input costs caused by inflation.
Underlying profit increased 4% and when backing out non-recurring items it increased 9% year on year. As such, the board declared an interim dividend of US10.75 cents per share, to be paid as 15.06 Australian cents per share, and franked at 30%.
Investors should know that, per the release, the unfranked component of the interim dividend is considered a conduit foreign income and may have implications at tax time.
Free cash flow after dividends was an outflow of US$147.9 million, a substantial decrease of US$311.7 million
compared to this same time last year.
Management commentary
Speaking on Brambles' 1H22 result, chief executive Graham Chipchase said:
Brambles delivered a resilient performance in the face of unprecedented supply chain disruptions and operating cost inflation. Our teams across the world have worked tirelessly to support our customers through significant COVID-19 disruptions including port congestions, container capacity constraints and shortages in transport, raw materials and other critical inputs. While Brambles is not immune to the pressures across global supply chains and pallet industries around the world, our scale, network advantage and the supply chain investments we have been making across our businesses have helped us respond to a range of cost and supply challenges in the first half.
What's next for Brambles?
Brambles management upgraded the company's FY22 sales and underlying profit guidance today. It now expects sales revenue growth of 6-8%, up from previous guidance of 5-7%.
Meanwhile, management anticipates an underlying profit growth of 3-5% up from a range of 1-2% previously. It also notes that underlying profit should include approximately US$50 million of short-term transformation costs.
Backing these out, management sees underlying profit growth to fall in a range of 8-10%, around 1–2 percentage points above previous estimates.
It also forecasts free cash flow after dividends to be another net outflow of US$350 million, ahead of a previously outlined US$200 million.
"If the lumber prices and supply chain dynamics that are currently impacting pallet availability and the capital
cost of pallets persist, Brambles expects FY23 Free Cash Flow after dividends to also be a net outflow", it remarked.
Brambles also estimates the FY22 dividend payments to remain in line with its policy of maintaining a payout ratio of 45-60% of net underlying profit.
Brambles share price snapshot
In the last 12 months, the Brambles share price has slipped 1% into the red and continued the trend into 2022 by sliding another 8%. In fact, Brambles is in the red across all major time frames, including today.
