Brambles Revises FY26 Guidance as US Repair Capacity Constraints Weigh on Earnings

About Brambles Ltd

Brambles Ltd (ASX: BXB) is a global logistics solutions provider operating primarily through the CHEP brand. The company connects supply chains through a large asset pool of pallets, crates and containers across approximately 60 countries. Its network includes more than 750 service centres and 348 million pallets, crates and containers.

Guidance was revised lower

The key message from Brambles’ update was that near-term operational constraints in the US have reduced FY26 earnings expectations. Sales revenue growth is now expected to be 2–3 per cent at constant FX, compared with previous guidance of 3–4 per cent. Underlying profit growth is now expected to be 3–5 per cent, down from the previous 8–11 per cent range.

The downgrade is mainly due to an estimated US$60 million earnings impact from repair capacity constraints in parts of Brambles’ US subcontracted service centre network. Around US$40 million of this impact reflects incremental supply chain costs, including additional repair, handling, transport and storage costs. The balance reflects customer mix and volume shortfalls.

This is a meaningful short-term setback because it affects both cost efficiency and Brambles’ ability to fully service higher-than-expected customer demand in affected locations. However, the company described the issue as temporary and expects the constraints to be resolved by the end of 1H27.

Quality requirements are changing

The operational challenge is linked to a broader shift in customer requirements. Brambles said increasing plant automation by customers is creating a need for consistently higher-quality pallets that are compatible with automated handling systems. As a result, Brambles has been progressively increasing repair quality to meet this demand.

This focus on quality consistency has increased the number of component repairs required per pallet in parts of the US network. While the investment in pallet quality was planned, it coincided with unexpected subcontractor turnover, labour shortages and higher customer demand. These factors combined to create repair capacity pressure during April.

For Brambles, the issue is not simply about near-term cost. It also reflects the changing nature of modern supply chains. As customers automate more of their logistics and warehouse operations, pallet consistency becomes more important. This may support stronger long-term service standards, but the transition is creating short-term operating pressure.

Actions are underway to restore service levels

Brambles said its priority is to improve service levels in affected locations and restore repair capacity across the US network. The company is increasing pallet relocations, adding repair capacity across subcontracted sites and insourced operations, and purchasing new pallets to support customer service continuity.

Around 2 million new pallets will be purchased in 4Q26, with further purchases expected in 1H27, subject to demand. The 4Q26 pallet purchases are expected to increase capital expenditure by around US$60 million, with most cash outflows occurring in 1H27.

These actions should progressively improve pallet availability, but they also raise costs in the near term. Brambles said additional pallet relocations and transport costs have increased, including higher use of spot market transport at a time of significantly higher spot rates and fuel prices linked to the Middle East conflict. Service centre costs have also risen because of additional shifts and higher rates to increase repair capacity.

Revenue growth still expected

Despite the downgrade, Brambles still expects FY26 sales revenue to grow. Full-year revenue growth is expected to be broadly evenly split between volume and price realisation. Strong net new business momentum in key markets, including the US and Europe, is expected to offset a year-on-year decline in like-for-like volumes.

The company said like-for-like volume trends in the January to April trading period remained broadly consistent with 1H26 levels. In the US, improving underlying consumer demand has been partly offset by repair capacity challenges. In Europe, cost-of-living pressures and other economic factors continue to weigh on consumer demand.

This suggests Brambles is still growing through pricing and new business wins, but the operating backdrop remains mixed. The business is not facing a demand collapse, but service constraints and macro pressure are limiting the pace of growth.

Cash flow remains strong

One of the clearer positives in the update was free cash flow. Brambles narrowed its FY26 free cash flow before dividends guidance to US$1.0 billion to US$1.1 billion, compared with the previous range of US$950 million to US$1.1 billion.

This strong cash generation supports shareholder returns. Brambles’ dividend payout ratio remains consistent with its policy of paying 50–70 per cent of underlying profit after finance costs and tax in US dollar terms, fully funded through free cash flow.

The company also said its current US$400 million on-market buy-back remains on track, with around US$370 million of shares purchased to date. A new US$400 million on-market buy-back will commence after the current programme is completed and will run during the remainder of FY26 and across FY27.

FY28 target remains unchanged

Importantly, Brambles reconfirmed its FY28 target to increase margins by around 3 percentage points or more versus the FY24 baseline. The company said current challenges will weigh on FY26 and 1H27 financials, but do not change its commitment to longer-term margin expansion.

That target depends on Brambles resolving US repair capacity constraints, improving pallet availability, recovering transport and fuel inflation over time, and continuing productivity improvements across the business.

Outlook

Brambles’ update was clearly a short-term negative, with FY26 earnings guidance revised lower because of US repair capacity constraints and higher supply chain costs. The main risks are execution in restoring repair capacity, elevated transport costs, labour availability, customer volume shortfalls and ongoing macro weakness in Europe.

However, the business still has strong free cash flow, a global network, pricing power, net new business momentum and confidence to launch another US$400 million buy-back. Overall, Brambles appears to be managing a temporary service and cost challenge while continuing to invest in pallet quality, customer service and long-term network resilience.