Brambles shares were well and truly hammered yesterday by nervous investors after the company’s 2008 earnings report and outlook failed to quell fears about its exposure to the troubled US economy and to the giant Wal-Mart retailing chain which is perhaps its most important contract overseas.
And there are rumours that Brambles CHEP subsidiary has lost a contract with one, possibly two major retailers in Australia.
So the shares plunged 13%, or 1.10 to closed at $7.41, after touching a day’s low of $7.26, off more than 14%. That was its low for the last year and yesterday’s fall was the largest in two years, so violent was the change in sentiment to the company.
The shares had spiked up over $9 after what seemed to be a reassuring update for the first 11 months of the year, but that confidence was sapped by the news yesterday.
The earnings were not all that flash: overall operating profit before special items rose.
Brambles basically said that earnings at some of its US businesses were declining, reflecting the effect of higher oil prices, the retailing slump, the credit crunch and the implosion of the US housing and construction sectors.
As well, the outcome of talks with Wal-Mart Stores, the world’s biggest retailer, remains unresolved, despite repeated reassurances that the deal would be completed.
That left more uncertainty about the company’s earnings outlook. The Wal-Mart deal has been dragging on since before last April.
CEO, Mike lhlein explained at a briefing that the talks with Wal-Mart were taking a little longer, "but we’re confident we will be able to provide the best solution.
The company said in its statement that until new arrangements are fully implemented with the retailer, CHEP is absorbing non-recurring transition costs.
So it’s no wonder Brambles’ CHEP business in the US reported a 1.2% drop in operating profit in the second half to June which further worried investors. .
For the year ended June, these transition costs amounted to $10.9 million before tax and Brambles said they may reach $30 million in the current financial year.
(The costs are related to the movement of pallets from Wal-Mart to Brambles’ service centers, especially in May and June, the company said).
As well as the Wal-Mart review, Brambles has initiated a $100 million two-year investment plan for quality improvement and innovation in the US. The company said of that figure, $25.1 million was spent in the 2008 year.
Brambles expects growth in all regions of its CHEP business except for Asia-Pacific, where investment, especially in China and India, will be made for expansion opportunities, Mr lhlein said.
Brambles said net profit from continuing operations for the 12 months to June grew to $US646.9 million ($A742.45 million) from $US433.7 million ($A497.76 million) in 2007.
Actual net profit, which included Cleanaway UK which the company sold in 2007, fell 50% to $US648.7 million ($A744.52 million) from $US1.29 billion ($A1.48 billion) the year before.
And profit before significant items rose 2% to $US626.5 million, which seems to have been the most accurate result of all (Brambles gave a good half dozen versions of its profit, from operating, to post operating, to net earnings, all with different figures).
Revenue rose 13% to $US4.359 billion ($A5.0 billion)
The company will pay a final dividend of 17.5 Australian cents per share, 10 per cent franked, taking the full-year dividend to 34.5 cents compared with 30.5 cents the year before.
CHEP, Brambles’ pallet business, increased sales by 12% to $US3.61 billion ($A4.14 billion) as it grew particularly in Europe and Asia.
Brambles’ document management business, Recall grew sales by 15% to $US748 million ($A858.49 million).
"This is a particularly pleasing result given the increasingly challenging economic environment in many markets and it confirms the strength of our business models," chief executive Mike Ihlein said in the profit statement.
"We continue to win significant new business, in both existing and new markets, and we have made excellent early progress in the implementation of our growth strategy.
"Our performance makes me optimistic about the medium to longer term growth outlook for Brambles."
The market reaction said otherwise.
