ii view: Bunzl maintains profit hopes despite falling sales

Third-quarter trading update

• Adjusted revenue down 4.7%
• Continues to expect full-year operating profit to be “moderately higher” year-over-year  

Chief executive Frank van Zanten said: “I remain excited by the Group’s medium-term opportunities, which continue to be driven by our proven compounding growth strategy and active acquisition pipeline, supported by a strong balance sheet.”

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ii round-up:

Distribution company Bunzl (LSE:BNZL) today maintained its full-year profit hopes despite lower sales given an ongoing normalisation after the pandemic and easing inflationary product price rises.

Third-quarter sales fell 8.8%, or 4.7%, on a currency-adjusted basis for the period, but with operating profit margins staying very strong and substantially above that seen in the pre-pandemic 2019 comparative period. 

Shares for the FTSE 100 company fell by more than 4% in UK trading having come into this latest news up around a similar amount year-to-date. That’s in contrast to a 1% fall for the 100 index itself during 2023.  

Bunzl sells and distributes a wide range of products which other companies need to run their businesses. Its customers include Walmart Inc (NYSE:WMT) and Domino's Pizza Group (LSE:DOM). 

Previous acquisitions contributed to growth of 2% at constant exchange rates during the quarter. The disposal of its UK healthcare business reduced revenues by 1.3%.

Within the trading update, Bunzl announced its 13th and 14th business purchases for the current financial year, bringing its cumulative spend to more than £425 million. It is buying both Brazilian surgical and medical devices distributor CT Group and Irish road traffic equipment safety distributor Pittman. 

A full-year trading update is scheduled for 14 December. 

ii view:

Bunzl sells and distributes items including food packaging, catering equipment, and cleaning and hygiene materials such as chemicals and hygiene tissue paper. Headquartered in London, it employs more than 20,000 people globally. North America generates its biggest slug of sales at around three-fifths, followed by Europe at just under a fifth, the UK and Ireland at just over a 10th, and the rest of the world the balance of just under a 10th. 

For investors, normalisation after the pandemic and reduced demand for items such as face masks is resulting in reduced revenues. Net financing costs as of its previous half-year results rose due to higher interest rates on group debt, while exposure to currency movements is worth remembering given that most of its sales are generated overseas.  

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More favourably, Bunzl remains a global leader in its market with no competitors of a similar size. Continued acquisitions are providing growth, group net debt fell as of its previous half-year results, while the dividend payment has increased for 30 consecutive years leaving the shares sat on an estimated future dividend yield of around 2.3%.  

For now, and while some caution looks sensible, this unrivalled distributor looks to remain deserving of its place in many already diversified investor portfolios.    

Positives: 

• Diversified customer type and geographical location
• Continues to seek growth-enhancing acquisitions

Negatives:

• Uncertain economic outlook
• Subject to currency volatility

The average rating of stock market analysts:

Hold