Brambles’ group sales in the nine months to 31 March were in line with Ord Minnett’s expectations, but we believe the estimated slowdown in CHEP USA growth in the third quarter is reason to be cautious on Brambles in the short term.
Beyond that, however, we continue to see pallets remaining an essential part of the fast-moving consumer-goods (FMCG) supply chain and believe pooling stacks up as the best economic solution for both manufacturers and customers.
Brambles' group sales for the nine months to 31 March were US$4.091 billion, which we estimate implies March-quarter FY17 growth in constant-currency terms of 5%, in line with expectations.
In the Pallets America arm, we estimate third-quarter constant-currency revenue was roughly flat on a year ago, the weakest result since the GFC. This outcome was probably dragged down by the recycled division (OMLe down 6%), but even taking that into account we think CHEP USA likely slowed from the constant-currency first-half FY17 growth rate of 3% to a rate of around 0–1%.
For the Pallets EMEA unit, third-quarter FY17 constant-currency growth of 7% represents an acceleration from first-half FY17 growth of 4%. Net new business wins likely drove this. CHEP's European operating margin may have peaked, but the size of the addressable revenue opportunity remains large (OMLe US$3.1 billion).
In the reusable plastic containers (RPCs) operation, third-quarter FY17 constant-currency growth of 12% was impressive against the backdrop of relatively weak FMCG volume growth in Europe (60% of global revenue) and in the US (20% of global revenue). In our view, RPCs continue to win market share from corrugated cardboard. Ord Minnett notes that top-line growth isn’t the problem for these operations, rather it is the return on invested capital due to the goodwill burden the business is carrying.