Brambles Earnings: Pricing and Pallet Recovery Offsets Inflation and Volume Declines

Brambles’ BXB fiscal 2023 constant-currency sales growth of 14% was reflective of pricing increases and operating efficiency, despite lower volumes. Volume declined by 2% lower versus the prior corresponding period, or PCP, with a pallet shortage in the first half, and customers holding less inventory than in the prior year. Underlying profit of USD 1 billion was 19% higher than the PCP on a constant-currency basis, with improved pricing offsetting cost inflation. Brambles declared a final fiscal 2023 dividend of USD 14 cents per share, for full-year dividends totaling USD 26.25 cents per share, 35% franked.

We maintain our fair value estimate of AUD 14 per share for wide-moat Brambles. We forecast underlying profit of about USD 1.18 billion in fiscal 2024, representing 11% growth, which is within firm guidance of 9%-12% growth. We forecast an underlying revenue CAGR of 6% for the five years to fiscal 2028. We expect this to be supported by continued pricing improvements, increased digitization, and efficiencies to recover missing pallets, which is more economic than making new pallets. But we expect pallet demand to remain flat, with volumes much the same as fiscal 2023 as customers change their behavior around holding and stockpiling inventory, amid fears of a recession.

Brambles’ wide economic moat is underpinned by its scale and excess returns in all segments of Americas, Europe, Middle East and Asia, and Asia-Pacific, which we believe leads to a durable cost advantage. This lower cost to serve converts into ongoing incremental volume growth and reinforces Brambles’ dominant market share across the various geographies it operates in.