Brambles to sell recycling business
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When a new chief executive takes the reins, they naturally want to work with a clean slate: skeletons are shaken from closets, profit expectations are ‘reset', and assets are sold and written off.
After Graham Chipchase took the corner office at Brambles in January, he didn't waste any time doing so. The company almost immediately lowered full-year profit guidance.
Now, Brambles is writing off US$244m of goodwill following a decision to sell its North American recycled whitewood pallet business, CHEP Recycled. The division has 80 plants, 2,200 employees and recycles 90 million pallets a year. It also provides pallet management services in Canada and the US. Unfortunately, the division has been a sub-par performer ever since it was acquired in 2011.
The company has invested heavily in the business over the past few years to find cost cutting ‘synergies' with its US pooled pallet business. Management said that it will keep those CHEP Recycled facilities that are used to recover and fix its pallets.
Brambles hasn't found a buyer for the division yet, but it will now be recognised under ‘assets held for sale' and considered a discontinued operation when the company announces its full-year result on 21 August.
The stock has fallen 20% since we downgraded it to Sell on 23 Nov 16 (Sell – $12.05). Brambles sports a forward price-earnings ratio of around 25 and a dividend yield of 3%. HOLD.
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