Brambles results stack up

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Tom Gorman, the CEO of global pallet pooling company Brambles Limited (BXB.AX) has fronted the Brambles’ Analyst & Media Briefing to report a healthy interim result by one of Australia’s true blue-chip companies.

Gorman reported that sales revenue grew 4% and underlying earnings per share (EPS) grew 12% to US20.1 cents per share (cps). During the briefing he also updated guidance for the full year to a net profit after tax (NPAT) of US$1.06 billion to US$1.09 billion, based on average expected exchange rates.

The Americas segment was the standout performer, with a particularly impressive turnaround in the fortunes of the CHEP USA pallet business. A couple of years ago, CHEP USA lost some key accounts to competitors (you may remember the talk around a shift of customer preferences to plastic pallets) but with the winning back of major customers, including Pepsi and General Mills, the Americas division outlook has improved. The improved performance helped the company raise its return on capital (ROC) within the division by 3% and in turn contributed to the overall companywide increase in ROC to 15%. To round out the solid results, the Board has declared an increase of half a cent to the dividend taking it to AUD 13.5 cps.

One theme which was evident during the briefing was discussion of exchange rates. Many economists have been vocal in calling the Australian Dollar (AUD) overvalued and history shows that the AUD is trading at a level far above its long-term averages. Global firms such as Brambles have significant exposure to overseas markets and foreign exchange rates which can be a good thing for a couple of reasons. First, with signs that the global economy may be improving, overseas operations may outperform domestic ones. Second, if the Australian dollar weakens, it has the potential to benefit shareholders through higher dividends upon conversion. Shareholders in companies including QBE Insurance (QBE.AX), News Corporation (NWS.AX), Resmed Inc. (RMD.AX), Ansell (ANN.AX), and Computershare (CPU.AX) who all report in US dollars but pay shareholders in Australian dollars may find themselves the beneficiaries of a lower exchange rate.

Foolish takeaway

With the AUD dropping towards parity and currently buying US$1.02, now is perhaps a good time for investors to remind themselves of which companies will benefit from and which companies will suffer from a weaker AUD.

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Market Data

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    AUDGBP=X
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    AUDEUR=X
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