Brambles Ltd (ASX: BXB) shares were smashed on Monday after the pallet pooling giant cut its FY26 profit guidance.
At market close on Monday, the Brambles share price finished down 20.23% to $17.63.
That fall put Brambles on track for its worst trading day in more than two decades.
The sell-off has added to a painful year for shareholders. Brambles shares are now down 23% in 2026 and 19% over the past year.
The damage comes after the company warned that short-term service issues in the US and supply chain inefficiencies in Europe would weigh on sales and profit.
So, what went wrong?
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Profit guidance takes a hit
In its update, Brambles said it now expects FY26 underlying profit growth of between 3% and 5% at constant currency rates.
That is well below its previous guidance range of 8% to 11%.
The downgrade is mainly tied to problems in parts of the company's US subcontractor service centre network.
Repair capacity constraints in some locations are making it harder to fully service stronger-than-expected customer demand.
Those issues are also pushing up short-term costs, with Brambles expecting a US$60 million earnings impact from the repair capacity constraints.
The pressure is also flowing through to the top line as well. Sales revenue growth is now expected to be 2% to 3%, compared with the previous range of 3% to 4%.
On the upside, Brambles said free cash flow before dividends is now expected to land at the upper end of its previous range. It is now pointing to US$1 billion to US$1.1 billion, compared with US$950 million to US$1.1 billion previously.
US network is the main problem
Brambles said it is already taking steps to improve service levels and restore pallet availability across the affected parts of its US network.
This includes moving more pallets between locations, adding repair capacity, and buying new pallets to help meet customer demand.
The company expects to buy around 2 million pallets in the fourth quarter of FY26, with further purchases planned in the first half of FY27.
Management expects the service issues to be resolved by the first half of FY27.
Furthermore, Europe is adding some pressure, with Brambles pointing to supply chain inefficiencies in the region. However, it expects part of this impact to be offset by overhead cost savings.
Buyback fails to calm investors
Brambles also announced a US$400 million on-market share buyback, but that hasn't been enough to settle investors today.
The buyback is expected to start after the current program is completed. It will then run through the remainder of FY26 and across FY27.
A buyback of that size would usually give the share price some support, especially from a business with strong cash flow.
Instead, the market is looking straight past the capital return and focusing on the earnings downgrade.
Foolish Takeaway
This is a tough update from Brambles, and the market reaction shows investors were caught off guard.
The buyback and cash flow outlook offer some support, but the profit downgrade did most of the damage yesterday.
A one-day fall of more than 20% is rare for a company of this size, especially one with a defensive reputation.
The stock may attract bargain hunters, but investors will want proof that the US service issues are being fixed first.
