The Brambles Limited (ASX: BXB) share price is up 3.40% in early trade, following the release of its half-year earnings for the 6 months to December 2019.
Brambles announced revenue and earnings growth in all of its regions, along with strong cash flow generation and US margin improvement.
Sales revenue up by 7%
Sales revenue growth of 7% was at the upper end of Brambles' guidance range, reflecting increased price realisation and robust volume growth across the group.
Volume growth contributed 4% to group growth and was driven by expansion with new and existing customers across all CHEP pallet businesses.
Like-for-like volumes were noted to be solid in the Americas and Asia-Pacific regions, while there was a notable slowdown in the European pallet and automotive businesses driven by challenging economic conditions.
Price growth of 3% was recorded, reflecting pricing initiatives to offset higher costs, particularly in the CHEP Americas segment.
Profit up by 5%
Underlying profit and operating profit increased 5% to come in at US$435.5 million. This included a US$12.4 million benefit from AASB 16.
Excluding the impact of AASB 16, the group's underlying profit increased 2% at constant currency as revenue contribution to profit, supply chain efficiencies and a moderation in global transport and lumber inflation more than offset anticipated direct cost increases in CHEP Americas and higher indirect costs across the group.
In CHEP Americas, direct cost increases reflected additional transport miles and overheads associated with the enhanced asset management program in Latin America and higher block-pallet repairs in Canada.
In the US, labor and property-related inflation and temporary inefficiencies during the rollout of the company's automation program drove an increase in plant costs.
Despite these cost pressures, the US business delivered margin improvement of 1 point in the first half, in line with Brambles' objective to improve margins by 2–3 points by FY22.
Improvement in cash flow
CHEP US margin was up by 1 point and in line with guidance, reflecting pricing and supply chain benefits associated with margin improvement initiatives.
Price realisation and asset efficiency improvements in CHEP Latin America were achieved with initiatives on track to offset the higher cost-to-serve in the region and progressively improve margins.
Brambles noted an improvement in cash flow (excluding a special dividend) driven by increased earnings, lower capital expenditure and improved cash collections across the Group.
Return on capital invested remained strong at 18.2%, despite a -1.8 point adverse impact from AASB 16.
Dividend update
A 2020 interim dividend of 9.0 US cents was declared, paid as 13.38 AUD cents. A payout ratio of 50% is in line with the prior year.
Brambles stated that a capital management program was on track with a special dividend and capital return completed in October 2019. A share buy-back program was progressing with 51.4 million shares bought back at a cost of US$415 million.
FY20 outlook
At constant currency and including the impact of AASB 16, Brambles noted that it expects mid-single digit sales revenue growth and underlying profit growth to be in line with sales revenue growth
It also expects an effective tax rate of approximately 30%, and net interest expenses of around US$85–$90 million.
