Brambles (ASX: BXB) announced quarterly sales growth of 5% when adjusted for the effects of FX movements. The business was strongest in the Americas, where sales revenue grew by 7%. If the company keeps these growth rates up, revenue will be higher than expected for FY19, which drove a small re-rate in the share price.
Brambles’ strategic priorities going forward (Credit: Brambles)
Expectations for Brambles have been set quite conservatively in recent times, after disappointing full-year numbers. Sales revenue grew by 7% while underlying profit only rose 2%, as cost inflation and changing consumer behaviour provided challenging market conditions for their core business. Their outlook for FY20 was for sales revenue growth to sit in the mid-single digits, with the global economy and a weaker automotive industry contributing to the gloomy outlook. The main upside from the results is that the slowdown was linked to the market and economic factors, not a structural deterioration in Brambles’ underlying business. The fact that they have already achieved this mid-single-digit sales growth means any further growth this year represents upside to forecasts.
The company focusses on developing solutions by which clients can outsource the management of pallets crates and containers. Brambles will then make its money by providing end to end supply chain solutions to clients, utilising its global scale and market knowledge to deliver the best solutions for clients. They also transport goods and have a long list of blue-chip clients who use their products. Key industries the company serves include consumer goods, fresh produce, beverage, retail and general manufacturing. Brambles aim to compete primarily on its scale, density and expertise, all of which are developed over a long period of time and present competitive advantages that are hard for other firms to overcome.
Going forward, Brambles aims to grow and strengthen these competitive advantages, while also making their own organisation more efficient. They aim to become more innovative, which could help them protect their margins. In broad terms, the company is satisfied with its existing competitive advantages but wants to develop them further to strengthen its competitive moat.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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