Shares for the future: nothing dull about this FTSE 100 stock

I am starting this year’s reappraisal of Bunzl (LSE:BNZL) with North America. The continent is where Bunzl earns 53% of revenue, and developments there shine a light on its strategy.

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Roll back

North America is home to Bunzl’s biggest business, North America Distribution (aka Distribution), which contributed about 30% of total revenue in the year to December 2025. Distribution supplies packaging and other products to caterers and grocers. These are Bunzl’s two biggest sectors. Food service contributes 31% of revenue and grocery 28%.                                           

Although the US economy was stymied by economic uncertainty, Bunzl says this served to amplify “execution issues” at Distribution, which “strongly impacted” Bunzl’s overall performance. Distribution has been misfiring for a couple of years, and to its credit, Bunzl gives over a few pages of its annual report to it.                                             

In 2023, Bunzl restructured Distribution, dispensing with the branch model under which more than 40 general managers took responsibility for pricing and stock. It introduced a more centralised operation that separated the sales function from the supply chain.

The intention was to focus the local teams on sales and encourage the adoption of own-brand products. The outcome was reduced sales to caterers and redistributors and higher costs, which combined with price deflation also reduced profit margins.

Bunzl has responded in a number of ways, launching more own-brand products, and cutting costs. Most significantly perhaps, it has tried to “re-energise” local teams by returning more control to them.  

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Despite only achieving a moderation in Distribution’s decline in profit margins during the second half of the financial year, Bunzl is confident in the freshly tweaked new operating model.

I believe this partial row-back exposes a tension in Bunzl’s business model. To see why, we need to take a closer look at the company’s capabilities and strategy.

Roll up    

City writers often refer to Bunzl as boring. It distributes essential products that businesses and organisations like hospitals use every day. They include packaging, store supplies, cleaning equipment, hygiene products, medical consumables and safety gear.

The company claims to be the largest value-added distributor of many of these products in the world, employing over 26,000 people in more than 33 countries.

Scale gives it advantages. Being a “one-stop shop”, for example, it can reduce costs for customers by consolidating all manner of products into a single delivery.                                       

Bunzl adds value through efficient supply and by developing sustainable own-brands, but volumes are critical to profitability. It earns modest profit margins on large volumes resulting in 2025 in an impressive 27% return on capital.

It has grown by acquiring rivals it knows well. Since 2004, it has acquired more than 230 regional distributors, and it is targeting 1,300 more. Each new acquisition grows Bunzl by a small increment, extending its territorial footprint, its product range, and its capabilities.

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Bunzl encourages the owners of acquired businesses to stay on, which is both an inducement for them to sell, and retains local supplier and customer relationships in the business.                    

The company improves the efficiency of new branches by consolidating warehouses, sharing IT systems, and purchasing in bulk. For example, it is in the process of reducing the number of warehouses in France from 15 to six.

In theory, the bigger Bunzl gets, the better it gets, but the centralisation of Distribution is contrary to Bunzl’s decentralised roll up strategy.                               

Distribution is predominantly a US business. It already has a national footprint, so acquisitions make less sense. As the business matures, it must rely more heavily on organic growth through efficiencies, extending the product range and competing for greater market share.

If Distribution has found the right balance between autonomy and efficiency, revenue and profitability should improve. But relying on organic growth in its biggest business may mean it grows less rapidly in future.  

In fact, Bunzl has not acquired a food service or grocery distributor in North America since PackPro (Canada) in 2023, and generally throughout the last decade it has sought to diversify. In 2024, Bunzl reported that 70% of total announced acquisition spend over the previous five years went on acquisitions in Healthcare, Cleaning & Hygiene, and Safety.         

Scoring Bunzl

2025

There is less to say about acquisitions than usual this year, because Bunzl spent less than a third of its average spend over the last five years, albeit on eight businesses. This, it explains, was due to the prevailing uncertainty.

Inflation and tariffs can be good for Bunzl because it operates on a cost-plus basis that passes price rises on to customers. Higher prices mean higher revenue, which leads to a higher profit margin when Bunzl can keep its own cost base from rising as much.

After a year of reduced acquisition activity, organisational troubles in North America, and weak customer sentiment, though, the results were poor by Bunzl’s standards. Turnover grew 1% and adjusted after-tax operating profit fell 7%.

In every other respect Bunzl’s performance was typical. The only red flags are the ones I have learned to live with: a business with modest 6% profit margins and operating capital entirely funded by debt.

Low profit margins are compensated by high volumes, and debt is conscionable while Bunzl’s profitability is high and cash conversion is stable.                                    

Bunzl anticipates flat profit in 2026, followed by profit growth. More may be revealed in a first-quarter trading update that should be released on 22 April.                                             

30 Shares for the future

Here is the ranked list of Decision Engine shares. I review the scores at least once a year, soon after each company has published its annual report. The price scores are calculated using the share price prior to publication.

Generally, I consider shares that score more than 5 out of 10 to be worthy of long-term investment in sizes determined by the ideal holding size (ihs%).

4imprint Group (LSE:FOUR) and Macfarlane Group (LSE:MACF) have published annual reports and are due to be re-scored.

Click on a share's score to see a breakdown (scores may have changed due to movements in share price). Key: qual is the share’s score out of 9 for the three quality factors (capabilities, risks, and strategy), price is the price score from -3 to +1, and ih% is the suggested ideal holding size as a percentage of the total value of a diversified portfolio.

Richard Beddard is a freelance contributor and not a direct employee of interactive investor.  

Richard owns Bunzl and many shares in the Decision Engine. He weights his portfolio so it owns bigger holdings in the higher-scoring shares.

For more on the Decision Engine and Share Sleuth, please see Richard’s explainer.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard