Brambles' maths problems

One of the best performing stocks on the ASX, Brambles is forecasting only modest growth this year leaving investors non-plussed.

When it comes to Brambles, the numbers just don’t add up.

For a stock that has packed on 40% in the past year, hugely outperforming the ASX and the industrials index in the process, delivering a low growth earnings result is one thing. But forecasting more of the same in the year ahead is asking for trouble.

The world’s dominant pallet operator is geared to global trade and investors have piled into the stock on the tantalising prospect of the great American recovery.

On the numbers delivered this morning, the recovery, or at least the potential benefits for Brambles, seems to be some way off.

The results themselves left many analysts underwhelmed. The $640.6 million net result was 14% up on last year but well below the $678 million many had hoped for.

But it was the soft outlook that has created some angst. Even with the planned spin-off of Recall, full-year growth for this year was tipped for between 4% and 8%.

Recall created a significant drag, which largely was anticipated, and explains the difficulty the company experienced in its ambitious attempt to sell the unit.

It contributed $US167.2 million in earnings before interest, tax, depreciation and amortisation, well below the previous corresponding period’s $US198 million.

The spin-off plans are on track, but the challenges facing the business appear formidable.

In terms of pallet earnings growth, the numbers were less than spectacular during the past year.

Earnings in the US division grew 8%, easily the best performing division. In Europe, however, which also includes the Middle East and Africa, growth was an anaemic 2% while Asia Pacific increased just 4%.

A reduced growth outlook for this year will see many investors wondering whether they’ve overcooked their expectations for an American recovery (see Carr's Call: Pinpointing market hotspots).