Good news; or another flash in the pan for the troubled US division of Brambles CHEP pallet business?
The company’s shares jumped more than 6% yesterday in the wake of a result that was better than expected, topped off by encouraging comments from CEO Tom Gorman who said the US pallet business had turned the corner and was winning new business.
The shares jumped 21c, or 4%, to $5.51 in trading yesterday after being up more than 6% in early trading.
The company, which operates the pallets business and an information management company, reported a lower full year profit.
Net profit for 2009-10 was $US448.8 million ($A499.1 million), down less than 1% from 2009 (in constant currency terms used by the company it fell 5%).
(Brambles calculates constant currency by translating results into US dollars at the exchange rates applicable during the prior corresponding period).
The company said its profit from continuing operations was $US443.9 million ($A493.72 million), up 2.3% from 2009, but down 1% in constant currency terms.
Underlying profit was $US733.4 million, down 19%, and 22% in constant currency terms.
But revenue rose 3.2% to $US4.15 billion ($A4.62 billion).
The company declared a final dividend of 12.5 Australian cents per share, 20% franked. That makes 25c for the year, compared with 30c in 2009.
The news that grabbed the market’s attention was contained in comments to a briefing by CEO Gorman.
He said the US pallet business had turned the corner, after it finally won more business in its most important market than it lost.
Mr Gorman, said the US unit had won $US18 million of new business since it began an overhaul in October last year which involved upgrading its pallet pool to a "minimum standard". It has also involved the introduction of ‘‘premium pallets’’.
"We have been very successful in holding business in the US and that really is the first step in solidifying your business," he was quoted as telling the briefing yesterday.
Brambles’s CHEP pallet business in the Americas has been a serial underperformer in the past couple of years as companies have stopped using the wooden supports and switched to newer plastic ones made by an emerging rival. Or they have stopped using them altogether as the have cut costs in the deep US recession.
The US CHEP pallet business saw sales fall 5% in the year to June, which damaged the group’s performance in its Americas’ operation.
The health of this US business is important, with analysts estimating that around a third of Brambles’ revenues occur in the US.
In his prepared comments, Mr Gorman omitted the Americas’ division from the head pats handed out to other divisions.
"“Our growth in sales revenue in the 2010 financial year of 3% was driven by CHEP Europe, Middle East and Africa (EMEA), CHEP Asia-Pacific and Recall, which offset the impact on the group’s financial results of a decline in sales revenue in CHEP Americas.
“Brambles delivered a 6% increase in second-half sales revenue compared with the same period in the 2009 financial year as established and developing regions generated new business, balancing subdued underlying conditions in some regions.
“Developing CHEP regions including China, India, Central and Eastern Europe and the Middle East delivered particularly strong growth rates. Investment in these CHEP regions is ongoing, along with other growth initiatives throughout the group."
And troubled engineering company Downer EDI yesterday lost its chairman, to go with the CEO who departed a couple of weeks ago after a disappointing year.
The company also revealed a 98% drop in net profit in the 2010 financial year, but is confident that earnings will rise in the current year.
Downer EDI reported full year net profit of just $2.96 million to June 30, down from $189.38 million in the previous year.
The combination of the news saw the shares off yesterday by investors still wondering if there are any more shocks in the company, especially in its troubled Sydney suburban passenger train contract being carried out in China.
The shares shed 6.7% or 32c to $4.41 yesterday. Obviously there are still a lot of skeptics in the market.
Downer said total revenue for the 2010 year was $6.06 billion, up 1.9% from 2009.
Earnings before interest and tax (EBIT) after significant items were $53.362 million, down 82.5% from 2009.
Before the near $200 million of write-downs signalled a couple of months ago, Downer said underlying EBIT for the June 30 year was $317.8 million, up 4.3% on the previous year. Underlying NPAT was $197.3 million, up 4.2%, just above the $194 million suggested last month by the company.
The company declared a final dividend of 16c an ordinary share, unfranked, steady with the prior year.
That makes a total for the year of 33.1c, up a tiny bit from the 33c a share paid in the 2009 financial year.
Downer said the engineering market was "very competitive" with lower margins, and with the global financia
