EU CONSUMER STAPLES: Bunzl:1Q earnings, FY guidance cut (x2)
(BNZLLN; NR/BBB+ Stable) (Equities -26%)
The call largely consisted of analysts probing for signs of a broader trend, but management pushed back, careful not to imply systemic issues or blame macro factors. Instead, it framed the weakness as operational and fixable. We don't see it as a mover yet keeping in mind the magnitude of earnings cut is small, good governance remains on the balance sheet and bonds were already trading wide to ratings. Euro-32s look most interesting on levels after moving the most today (+12). The equity drop (–25%) is jarring and sent it back to 2021 levels. The company typically provides a 2Q trading update in mid-to-late June (~2–2.5 months from now).
NA issues (55% of business):
- A major customer was lost during the quarter — a grocery client — which management characterises as an isolated incident driven more by pricing than service levels. It declined to say whether it was the largest account.
- We do not see a customer concentration breakdown, beyond a general reference to “low customer concentration by profit" in past reports.
- Broader NA volumes fell quarter-on-quarter. Management attributes this partly to macro uncertainty, but more to internal issues around timely sourcing. While it admits volumes likely shifted to competitors, aside from the large client, the rest were smaller/local accounts that are price-sensitive and which it views as easier to win back.
- Operating costs rose, partly due to investment intended to drive growth — which didn’t deliver.
These three factors drove the 1Q profit pressure. The company now guides to a 100bp contraction in 1H EBIT margin (to ~7.0%). It confirmed the margin decline in NA will be broadly in line with group trends.
Other:
- Tariffs: 10% of US sourcing comes from China. Management says anything it could easily shift has been, while remaining exposure is deemed strategically sensible (e.g., disposable gloves, which are universally sourced from China). Historically, tariffs have been net-beneficial for Bunzl.
- Acquisitions: Of the £700m acquisition budget, only a portion is now expected to be deployed.
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