Supply Chain SNAFUs Stymie Brambles

Multinational logistics group Brambles has warned that supply chain issues across its global businesses could potentially hit its forecasts for the current financial year.

In its September quarter trading update, the company cited higher costs for timber (for its pallets), labour (wages in the US) and transport (higher energy costs).

So far the company says it is managing the problems and investors accepted that assurance and lifted the shares by a gentle 0.2% to $10.17 on Tuesday.

“Our first-quarter sales performance demonstrates the commercial resilience of our business, with pricing and surcharge mechanisms supporting the recovery of increased costs across global supply chains,” Brambles CEO, Graham Chipchase said in the update

“We continue to operate in a high inflationary environment with pallet availability constraints and ongoing lumber, labour and transport scarcity disrupting supply chains and driving increased costs across our businesses.”

He says pallet availability remained challenging in the first quarter with industry-wide shortages of new pallet supply across the globe as well as lower levels of pallet returns and longer cycle times in its North American business.

““Despite some moderation in lumber inflation in North America, lumber prices across the Group remain above historic levels and pallet prices continue to increase, particularly in Europe and Latin America. We expect inflationary pressures to remain for the balance of FY22,” he added.

The latter resulted in a fall in like-for like volumes in North America in the quarter and contributed to the lower rates of new business growth across the Americas and Europe.

“We prioritised servicing existing customer demand over new customer wins,” Mr Chipchase said.

It also meant the company has been forced to meet higher plant and transport costs as it responds to volatile customer demand.

For the 2022 financial year, Brambles says it is expecting sales revenue growth of 5% to 7%, underlying profit growth between 1% and 2%  (including approximately US$50 million of short-term transformation costs).

Revenue growth will moderate from the 9% in the first quarter “due to stronger FY21 revenue comparatives for the balance of FY22.”

Free cash flow is expected to be an outflow of approximately US$200 million, but Brambles says this is dependent on a number of factors, including timber prices, sawmill capacity and efficiency of global supply chains.

For the quarterly update, Brambles says sales revenue from continuing operations rose 11% on the prior corresponding period to $US1.292 billion, and was up 9% in constant currency terms.

“Dividends are expected to be in line with our policy to pay out between 45%-60% of Underlying Profit after finance costs and tax in US dollar terms. “

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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