Bunzl revenue growth slows in Q1 as North America weighs
By Michele Maatouk
Date: Wednesday 17 Apr 2019
(Sharecast News) - Distribution and outsourcing group Bunzl said on Wednesday that underlying revenue growth slowed in the first quarter, mostly due to its North America operations, as it announced the recent acquisition of Netherlands-based distributor Coolpack.
Bunzl said first-quarter revenue increased 4% at actual exchange rates. At constant exchange rates and adjusted for the impact of the number of trading days in the quarter relative to the prior year, revenue was up around 2.5%.
Of this growth, acquisitions, net of disposals completed in 2018, contributed 1% with underlying revenue growth adding approximately 1.5%.
Bunzl said the rate of underlying revenue growth slowed during Q1 due to mixed macroeconomic and market conditions across the countries in which it operates. In particular, its North American business saw slower underlying growth of around 1% as a result of slightly lower sales to customers in the grocery and retail sectors, mostly due to the lack of both volume growth and product price inflation.
However, the company said there has been good growth in the safety, processor, agriculture and convenience store sectors.
Underlying revenue growth in Continental Europe, UK & Ireland and the rest of the world was about 2%.
Bunzl also announced the recent acquisition of Coolpack, a Netherlands-based distributor which supplies specialist packaging to supermarkets and the pharmaceutical and foodservice sectors.
"Growth through acquisitions to consolidate the markets in which the company operates is an important part of Bunzl's consistent and proven strategy.
"The pipeline of potential acquisitions is promising and, with ongoing discussions taking place, the company expects to complete further transactions as the year progresses."
Shore Capital analyst Robin Speakman said: "Whilst it remains early in the year and we have had a slowdown in our revenue forecasts from slowing global GDP growth, the Q1 impact is a little greater than we had anticipated. We expect margins to be solid across the group, but the short term profit nuance from slowing revenues is slightly negative to our forecasts - in the circa 1% to 2% range.
"Given that Bunzl's shares have been trading at all time high levels in recent days, we expect some profit taking to follow this statement. In the medium to long term, Bunzl remains very strongly positioned for delivery with solid cash generation characteristics. We retain a 'buy' stance."
At 0810 BST, the shares were down 12.5% to 2,233p.
Russ Mould, investment director at AJ Bell, said: "Markets have been right to worry about a global economic slowdown if you look at Bunzl's gloomy update.
"It supplies goods to companies so they can do business, rather than items they sell on to their customers. For example, this includes coffee cups for cafes, cleaning products for hospitals and food wrap for supermarkets to protect their goods. Therefore, it can be considered an economic bellwether.
"Bunzl calls itself 'GDP-plus', meaning its earnings should grow in excess of GDP in the countries in which it operates.
"Analysts should have already factored in slowing GDP growth to their earnings forecasts because of plentiful signs of economic weakness around the world. Yet life is much worse than expected for Bunzl judging by its sharp share price decline on the news.
"The fact that underlying revenue growth during its first quarter seems to have slowed in all markets is a major alarm bell. The big question is whether life is getting to get even tougher in its second quarter."
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