The logic behind Tom Gorman's decision to spin off Brambles' (BXB) document storage business Recall was clearly displayed this morning.
Forget there are no synergies, no real connection, between pallets and documents. The big difference between the operations is that Brambles is winning over new business and lifting revenue while Recall is struggling.
Brambles this morning reported first quarter sales growth of 7% to $US1.31 billion as the revenue from its recent Pallecon acquisition kicked in and following new business wins.
Given the revenue lift was scored against a backdrop of relatively dormant global growth in consumer staples, Brambles performance highlights the potential for the company once consumer demand swings back to reasonably normal levels (see Brendon Lau's How to profit from stock demergers).
American growth was behind the performance while expansion with key retail partners in its reusable plastic containers division lifted earnings.
The results this morning excluded the Recall performance. Those numbers will be included in the prospectus sent out to shareholders within the next fortnight.
Brambles, as a stand-alone operation, is on track to deliver its promised full year underlying earnings of between $US930 million and $US965 million.
Brambles tried to sell Recall around 18 months ago, just as global markets were buffeted by the fallout from the European debt crisis.
After more than 10 months on the market, the company gave up. The original motivation for the sale sprang from a desire to restore its balance sheet following the $1.3 billion acquisition of German pallet group IFCO Systems. Brambles then resorted to a capital raising.
Recall's growth prospects simply do not match those of Brambles, given the seismic technological shifts underway in the industry and last year suffered a downturn in revenue and underlying earnigns.
Cutting it adrift makes perfect sense.