UPDATE:Brambles Loses PepsiCo Pallet Contract In US
March 24 2009 - 11:54PM
Dow Jones News
Global logistics firm Brambles Ltd. (BXB.AU) confirmed Wednesday
its CHEP wooden pallet pooling business has lost a contract with
units of U.S. food and beverage firm PepsiCo Inc. (PEP), which will
move to exclusively use plastic pallets supplied by a competitor
from next month.
Florida-based Intelligent Global Pooling Systems, owned by
private-equity firm Pegasus Capital Advisers, said on its website
Monday that PepsiCo's Quaker, Gatorade and Tropicana business units
will begin integrating the firm's all-plastic pallets exclusively
across their supply chain from April 1.
A spokesman for Brambles told Dow Jones Newswires that while the
loss of the customer from its core CHEP business was disappointing
"nothing's changed about the validity of wooden pallets, they
remain an ideal form for transporting goods through the supply
chain."
At 0300 GMT, Brambles shares were down 8.1% at A$5.19 and
traders said the market remains concerned about the threat to
CHEP's business model from plastic pallets supplied by iGPS and
other competitors, as a worldwide economic slump also impacts
demand for their services.
"It's hard to see how Brambles can compete with the new iGPS
pallets," said Patrick Crabb, senior trader at Goldman Sachs
JBWere.
"They are 30% lighter than wooden ones, with no nails or
splinters and they have a tracking system embedded in each pallet
so customers can track products through the supply chain and it's
100% recyclable."
The Brambles spokesman said the PepsiCo units accounted for less
than 5% of revenue from its CHEP Americas division, one of three
operated by the global pallet pooling leader which leases around
300 million blue wooden pallets and plastic containers to cart
goods across more than 45 countries.
For the year to June 30, CHEP Americas accounted for around 36%
of the firm's US$4.36 billion in total sales, which also included
nearly US$750 million from its Recall information management
unit.
After posting a 28% fall in interim net profit last month, the
firm refused to provide earnings guidance for the full year, saying
the "sharp deterioration" in global trading conditions since
November made forecasts difficult.
Brambles said at the time it will spend US$99 million to scrap
seven million excess pallets in the U.S. due to the economic
downturn and expects to incur up to US$30 million in costs after
the world's largest retailer, Wal-Mart Stores Inc. (WMT), demanded
a restructure of its contract last year.
"Theirs is a business model whose margins and volumes are at
risk of slowing via death by a thousand contract losses," said
Crabb.
However, Brambles' spokesman said, "we continue to win new
customers and we're sorry to lose this one but we'll be working to
win replacements."
Brambles shares fell 25% in the two days following its interim
results and early this month hit a record low of A$4.08 as the
threat of slowing global economic activity looms.
"Brambles has been extremely volatile and in an environment like
this, I don't see any reason to own it or trade it," said Tim Breen
an associate director at Melbourne-based broker Tolhurst.
"Even if you are a believer in buying cyclicals at this point,
this is not a cyclical I would be buying," he said.
-By Bill Lindsay, Dow Jones Newswires; 61-2-8272-4694;
bill.lindsay@dowjones.com
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