Bunzl shares tumble as investors fret over revenue growth

(Sharecast News) - Shares in distribution giant Bunzl slumped on Monday as investors were unimpressed with a weaker performance in the US which held back sales.

Adjusted pre-tax profit rose 2.2% to £873m while revenue fell slightly to £11.7bn. The company, which supplies companies globally with items such as food packaging and labels for supermarkets, catering equipment and personal protection clothing for hospitals, reiterated guidance after posting a rise in adjusted annual profits.

On a reported basis, profits fell 3.6% to £673m. Shares were down 8% at one stage in London trade.

"Despite significant uncertainties relating to the wider economic and geopolitical landscape, the group expects robust revenue growth in 2025, at constant exchange rates, driven by announced acquisitions and slight underlying revenue growth," Bunzl said.

"Group operating margin is expected to be maintained in-line with 2024 and to remain substantially higher compared to pre-pandemic levels, driven by higher margin acquisitions, as well as a good underlying margin increase."

Bunzl cited deflation across the US and Europe, which led to fiercer competition to decrease prices among suppliers, for the revenue decline. Sales volumes were also impacted by the firm switching its focus towards own-brand products in its food services division in the US.

In the UK, Bunzl flagged a more challenging sales environment leading to weaker volumes, particularly in its safety division, which includes supplying equipment for building sites, and retail arm, with packaging for luxury fashion and jewellery firms impacted by slower consumer demand.

"A lack of upside surprises in the guidance for 2025's profits is weighing on shares in Bunzl, even if (it) is increasing its dividend once more and has plans to further boost cash returns for shareholders in the coming year," said AJ Bell investment director Russ Mould.

"Investors may also be looking at the decline in profits on a stated basis in 2024 and how the company's increased focus on acquisitions may also hint at a slowdown in the core operations, although Bunzl has a good track record of using bolt-on deals to great effect while avoiding the risk of a big, so-called 'transformational' purchase."

"Bunzl's results statement champions a 7% increase in 2024's headline operating profit once currency movements are taken out of the equation. However, investors seem to be focusing on the 1% rate of advance in operating income as reported under statutory accounting rules, especially as revenues failed to advance for the second year in a row."

"Falling prices as we emerge from an inflationary period have been a headwind for Bunzl's revenue growth and while this effect is beginning to wear off, underlying growth looks set to remain subdued."

Reporting by Frank Prenesti for Sharecast.com