Bunzl has shared details on first half trading, with revenue expected to increase around 4%, ignoring exchange rates, driven by acquisitions and disposals. Underlying revenue is expected to be broadly flat (consensus 0.9% decline) with a decline in underlying operating profit.
The group expects business to pick up in the second half of the year, especially in the US and Europe.
Bunzl reiterated its full year guidance with underlying revenue expected to remain flat (consensus 0.5% decline), and its operating margin to be just under 8% (consensus 7.7%).
The group highlighted its acquisition of Solupack, a Brazilian distributor of own brand packaging solutions for the food industry, which is pending regulatory approval.
The shares were up 1.8% in early trading.
Our view
Bunzl has managed to steady the ship after first-quarter trading in April revealed serious challenges, some of which were self-inflicted. Downgraded guidance is now stable, and actions to tackle some of the challenges in North America are starting to yield results, with better performance expected over the second half.
Bunzl is a distribution powerhouse that supplies everyday essentials in the UK, Europe, and North America - like packaging, cleaning supplies, and safety gear. North America is the largest market and highest-margin region, and where most of the issues lie. A poorly executed shift in pricing strategy has coincided with ongoing deflation. Add in the loss of a key customer, and it’s a recipe for trouble.
Zooming out for a minute - despite this misstep, Bunzl is a very well-run organisation. Margins are under some near-term pressure, but the longer-term trend has been impressive. It’s also been making good progress on the sales of higher-margin own-brand products, and the use of online channels.
Management sounded a cautious tone about the impact of tariffs back in April, which was a little disappointing. There’s a lot of volatility, and it’s possible that any benefits from higher prices are offset by economic weakness. Still, we think Bunzl is more insulated than most.
We’ve seen this before during Trump’s last presidency, where Bunzl benefited from tariffs through higher prices for customers while at the same time negotiating deals with suppliers. Bunzl has another ace up its sleeve, with its capital light business model and no manufacturing facilities. That means it can quickly shift its supply chain away from high tariff areas.
Acquisitions have been a key part of the strategy and remain so. But given the softer outlook, focus is shifting from spending to saving, and the £750mn acquisition pledge is unlikely to be met this year. That’s prudent risk management, but growth will ultimately take a hit, given that acquisitions have been a key driver in the past.
Recent missteps were disappointing, especially when self-inflicted and coinciding with a soft market. That said, we still have confidence in the long-term case for Bunzl’s resilient portfolio The valuation, after expectations have been reset, looks attractive, and we expect operational improvements to take effect in the coming quarters. But there are no guarantees.
Environmental, social and governance risk
General Industrial companies are medium risk in terms of ESG but can trend up to the higher end of the spectrum depending on subindustry. The primary risks can include labour relations, emissions (either product or production-based), business ethics and product governance. Other concerns are waste and health & safety.
According to Sustainalytics, Bunzl’s overall management of material ESG issues is strong.
While its overall reporting could be further improved, Bunzl has implemented initiatives such as linking executive pay to ESG goals, establishing a board committee for ESG oversight, adopting a strong environmental policy, and providing robust whistleblowing channels.
Bunzl key facts
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