ii view: profit warning plunges Bunzl shares to 4-year low

First-quarter trading update since 31 December

• Adjusted sales stripped of acquisitions down 0.9%

Guidance:

• Now expects broadly flat adjusted sales for 2025, down from slight growth
• Now expects a full-year 2025 operating profit margin moderately below 8%, down from 8.3% in 2024

Chief executive Frank van Zanten said:

"I am disappointed with our performance in the first quarter in this challenging trading environment. We are taking decisive action to improve performance in the Group, particularly with regards to execution in our largest business in North America.

“Overall, my confidence in the Group's compounding growth strategy and resilient business model remains unchanged, supported by our continuous focus on improving our offering to customers.” 

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ii round-up:

Distribution company Bunzl (LSE:BNZL) today lowered annual profit expectations due to challenges in North America, resulting in the halting of the group’s share buyback programme. 

A combination of sales weakness, particularly for foodservice and grocery customers, product price deflation and investment costs required in the rollout of its own branded product offering, have all impacted North America, which is Bunzl’s biggest business by sales. 

As such, the operating profit margin for 2025 is now expected to be moderately below 8% compared to 2024’s 8.3%. The City is now forecasting a cut to profit estimates in the region of 7% to 10%, and that's before any possible impact from trade tariffs.

Shares in the FTSE 100 company plunged 25% in UK trading having come into this update down around 7% year-to-date. They haven't traded that low since March 2021. The FTSE 100 index has retreated around 0.7% so far in 2025.

Bunzl sells and distributes a wide range of non-food consumables such as paper towelling, disposable cutlery and cleaning products which other companies need to run their businesses. Group customers include Walmart Inc (NYSE:WMT), Domino's Pizza Group (LSE:DOM) and the NHS.

Adjusted sales stripped of acquisitions had fallen 0.9% since the start of the year, down from a gain of 1.3% in the final quarter of 2024, and below analyst hopes for an improvement of between 0.5% and 1%. 

Bunzl now expects broadly ‘flat’ full-year revenue stripped of acquisitions, down from a previous forecast of ‘slight’ growth for the year. 

Increased uncertainty about the economic outlook now leave management keen to keep borrowing at the lower end of 2-2.5 times adjusted net debt-to-adjusted profit (EBITDA) range, causing Bunzl to pause its previously announced £200 million share buyback programme. 

A first-half trading update is likely to be announced mid-to-late June. 

ii view:

Started in 1854, Bunzl today employs more than 20,000 people globally. The FTSE 100 company sells and distributes products including food packaging, catering equipment, and cleaning and hygiene materials such as chemicals and hygiene tissue paper. North America generated its biggest slug of sales in 2024 at 56%. That was followed by Europe at 20%, the UK and Ireland 14%, and the Rest of the World the balance of 10%.  

For investors, a combination of trade tariff wars and cuts to US government jobs may now be dampening US consumer appetite to spend, including eating out at restaurants. Adjusted net debt-to-EBITDA at the end of 2024 sat at 2.1 times, up from 1.6 times in late 2023. Operating profit margin also remains pressured at its European business, while exposure to currency movements cannot be ignored given that most of its sales are generated overseas.

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On the upside, group action includes management changes, a focus on higher margin own branded goods and a push to cut costs further. Bunzl remains a global leader in its market with no competitors of a similar size. Bolt-on acquisitions continue to be found and made, while the dividend payment has increased for more than 30 consecutive years, leaving the shares on a forecast dividend yield of 2.4%. 

In all, an unrivalled market position and a track record of growth should not be ignored. That said, current challenges and increased uncertainty about the outlook may mean investors prefer to wait and see how the story unfolds.    

Positives: 

• Diversified customer type and geographical location
• Seeking bold-on acquisitions

Negatives:

• Uncertain economic outlook
• Subject to currency volatility

The average rating of stock market analysts:

Buy