- Firm blames soft trading in US
- Worst one-day drop in a decade
- £2.3 billion wiped off market cap
Investors in global distribution and outsourcing group Bunzl (BNZL) received an uncharacteristic negative surprise as the FTSE 100 firm cut its earnings outlook and suspended its share buyback.
The shares slumped as much as 826p or 27% before steadying to sit at a three-year low of £23.76, a loss of 702p or 23%, wiping £2.3 billion off the company’s market value.
TOUGHER MARKET CONDITIONS
Bunzl posted disappointing growth for the three months to March with like-for-like sales down 0.9% against consensus forecasts of a 5%-plus increase due to what it called ‘a more challenging economic backdrop’.
‘Since our last update, in a more uncertain macro environment, we have seen some revenue softness across our North American businesses,’ said the firm.
‘This has resulted in operating margin pressure across the business area, and in particular it has amplified challenges specific to our largest business, which primarily services foodservice and grocery customers.’
Meanwhile, operating margins in continental Europe have continued to decline and underlying revenue growth in the UK and Ireland has been lower than expected due to deflation and a lower-value product mix.
The sole bright spot so far this year has been Latin America, where the business has managed to maintain a ‘good’ operating margin, according to the company.
GUIDANCE LOWERED
To reflect the ‘operational challenges’ faced by its largest business in North America, and the implications for the rest of the year after a tough first quarter, the group lowered its operating margin forecast to below 8% instead of in line with or better than last year’s 8.3% margin.
However, even this may be subject to change as the first-half margin is seen at ‘around 7%’ which means there needs to be a substantial improvement in the second half of the year.
In addition, this latest guidance excludes the potential impact from tariffs or their effect on inflation and economic growth.
As the firm points out, inflation is usually a benefit but ‘this situation remains dynamic, and any potential benefit from tariffs together with a potential adverse impact on economic growth is excluded from our guidance’.
BUYBACK SUSPENDED
Given the macro uncertainty, the board has decided to reduce the lower end of its target gearing range from 2.5 to two times adjusted net debt to EBITDA (earnings before interest, tax, depreciation and amortisation).
‘We aim to be towards the lower end of our target range by the end of 2025, after potential acquisition spend, with our cash generative business model allowing us to continue investing in value-accretive acquisitions, with our pipeline active, whilst maintaining a strong balance sheet.’
As a result, the company has paused its £200 million buyback programme for the remainder of 2025, having purchased around £115 million of shares year-to-date.
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. Bunzl has a long-term track record of delivery and continues to be very well placed to navigate periods of macroeconomic uncertainty given our focus on essential products, the depth of our customer and supplier relationships and our sector and geographic diversification.’
