Sluggish market trims Brambles' pallet profits
Sydney Morning Herald
Thursday February 18, 2010
BRAMBLES said it was yet to see a sustained recovery in its key European and US markets, after it posted a 3 per cent decline in first-half profits.Speaking at his first earnings briefing as Brambles' chief executive, Tom Gorman said demand for its wooden pallets had stabilised but "it's very difficult to say we have turned the corner".The world's biggest supplier of pallets reported a net profit of $US207 million ($230 million) after significant items for the six months to December 31, compared with $212 million previously.The result was slightly less than the market had anticipated, partly because Brambles brought forward its planned spending on reviving its US pallet business.Brambles blamed sluggish sales revenue on "subdued economic conditions" in its key markets of the US and Europe. It still has 4 million pallets at its depots in the US."Although there are pockets of economic growth throughout our business, we are not seeing a sustained return to underlying economic growth in our key markets in the US and Europe," Mr Gorman said."In the first six weeks of this calendar year we have not observed enough to conclude that market conditions are improving significantly from the last quarter of last calendar year."Mr Gorman will complete an overhaul of his senior management team within the next few weeks, when an external executive "with significant logistics experience" takes the reins as boss of CHEP Europe, Middle East and Africa. The new boss was not named yesterday because he is still in another job.Shares in Brambles rose 39c, or almost 6 per cent, to $7.04 yesterday, after a rally in the Australian market and amid suggestions from investors that management went out of its way to be conservative to surprise with better results later in the year.The freight pallet company still expects its underperforming CHEP pallet business in the US to lose more customers this year than it gains, despite it announcing in October its second shake-up of the unit in less than two years. It said pallet issues in the US would be about 3 per cent lower in 2009-10 than the year before.Brambles has faced growing competition in the US from companies such as iGPS, which is led by a former CHEP senior executive, Bob Moore. It lost business from Kraft and PepsiCo last year to iGPS and analysts have speculated in the past week that it could lose a contract from another significant customer.Mr Gorman said Brambles would continue to "aggressively protect market share in the US" but he admitted iGPS was "a serious competitor in the marketplace".Pallets account for about 89 per cent of Brambles' sales revenue.
© 2010 Sydney Morning Herald