ii view: Bunzl upgrades full year profit outlook

First-half trading update to 30 June

Chief executive Frank van Zanten said:

“After an excellent start to the year for acquisitions, we maintain a strong balance sheet, providing us with significant optionality to continue to self-fund value-accretive acquisitions and our pipeline remains active."    

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ii round-up:

Distribution company Bunzl (LSE:BNZL) today detailed an improved quarterly sales trend as well as raising expectations for annual profit margin.

Second-quarter revenue stripped of acquisitions fell around 4.5%, better than the 5.4% decline seen in the first quarter and still impacted by reduced product volumes at its core US business. Increased customer purchasing of its own higher margin brands is, however, now expected to see full-year operating margin come in slightly above 2023’s record.   

Shares in the FTSE 100 company rose 1% in UK trading having come into this latest news down by 5% year-to-date. That’s below a 6% increase for the FTSE 100 index in 2024.  

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

Supply to its foodservice customers in North America continued to bear the brunt of lower revenue, with adjusted sales in Continental Europe and the UK & Ireland also falling, although partly countered by increased demand across its Rest of the World business.

Continued bolt-on acquisitions now see Bunzl's total committed spend so far in 2024 at around £600 million. That’s already ahead of the £468 million spent in 2023.

In April, the company acquired RCL Implantes, a Brazilian distributor specialising in surgical and medical devices. More recently, it bought Clean Spot, a distributor of cleaning and hygiene products and equipment in Canada. Such acquisitions are also feeding into its improving profit margin as it likely takes advantage of increased product purchasing scale. 

First-half results are scheduled for 27 August. 

ii view:

Tracing its history back to 1854, Bunzl today employs more than 20,000 people globally. The FTSE 100 company sells and distributes items including food packaging, catering equipment, and cleaning and hygiene materials such as chemicals and hygiene tissue paper. North America generates its biggest slug of sales and operating profit at 59% and 54% respectively, followed by Europe at 20% and 23%, the UK and Ireland at 12% and 11%, and the rest of the world at 9% and 12%.

For investors, pressured consumer spending in its core North American market is likely responsible for lower product volumes. The end of the pandemic and reduced demand for items such as face masks has made for tough comparatives. Net financing costs rose £27 million over its last financial year given higher interest rates on debt, while exposure to currency movements cannot be ignored given 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. Ongoing acquisitions are helping to fuel growth, group net debt fell 6% over its last financial year, while the dividend payment has increased for more than 30 consecutive years, although the forecast yield is a modest 2.4%.  

In all, and despite continued risks, this unrivalled global distributor looks to remain deserving of its place in many diversified 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