Brambles' US pallet repair bottleneck triggers a 22% single-day fall

A steady, multi-year margin turnaround at Brambles came to an abrupt halt in May 2026 when subcontractor and labour constraints in its US pallet repair network forced a sharp guidance downgrade, even as the company sweetened the blow with a fresh US$400 million buyback.

30 Jun 2026 · 5 min read

Brambles Ltd (ASX: BXB) spent much of 2025 delivering the kind of steady margin-driven turnaround that had attracted a growing list of fund manager holders, before a sudden operational bottleneck in its US pallet repair network forced the sharpest downgrade in its recent history. Infinity Asset Management captured the earlier momentum in August 2025, noting FY25 sales growth of 3% came in slightly below expectations but the business continued to expand margins through supply chain improvements, driving NPAT up 2% and EPS up 5%, with free cash flow strong enough to lift the full-year dividend 5% above consensus.

A steady turnaround attracts new capital

Through late 2025 and early 2026, several managers used the steady execution to build positions. Australian Eagle Asset Management described Brambles in October 2025 as a global logistics company specialising in reusable pallet solutions whose turnaround had reduced costs and capex while significantly increasing margins and shareholder returns. Ellerston Capital reintroduced the stock to its portfolio in April 2026, a company it said it had previously owned and knew well, while Oracle Advisory Group added Brambles in December 2025 specifically to provide more defensive exposure to its portfolio.

BXB is still delivering good growth, but much of this is captured in the current multiple of 22x. The div of 23c also came in higher than market at 21c, on a 60% payout ratio.

Pendal Group, Newsletter, February 2026

The US repair network hits capacity constraints

The turning point arrived in May 2026. Pendal Group reported Brambles issued a trading update cutting FY26 underlying profit growth guidance from 8-11% to 3-5%, citing an estimated US$60 million earnings hit from pallet repair capacity constraints across parts of its US subcontracted service centre network. The constraints emerged in April, driven by subcontractor turnover, labour availability challenges, and higher pallet quality standards required to service increasingly automated customer supply chains, all coinciding with stronger-than-expected customer demand from the third week of April. Pendal noted the impact was largely driven by higher spot transportation costs and a shift in revenue mix away from smaller SME customers in order to maintain service to larger, though lower-margin, customers, with management expecting the US repair capacity issues to ease by the end of the first half of FY27.

This downgrade came as a material negative surprise to the market, given how resilient earnings growth has been, even as the company has downgraded revenue guidance the past two years.

Pendal Group, Newsletter, May 2026

A softer Europe and a fresh buyback

The downgrade was not confined to the US. Pendal Group noted revenue growth guidance was also trimmed from 3-4% to 2-3%, with part of that reduction tied to the US capacity issues but also reflecting deteriorating conditions in Europe, adding a further $15 million negative impact on top of the $60 million direct US hit. On top of the earnings impact, Brambles will purchase 2 million new pallets for US$60 million in extra capex that will affect FY27 cashflows. To soften the blow, the board announced a fresh US$400 million on-market buyback to follow its nearly completed existing program, even as consensus expectations were downgraded around 6% on no explicit guidance for the FY27 financial impact.

What managers are watching next

With the share price falling from around $22.63 in April 2026 to roughly $17.25 in May, and management guiding to the US repair capacity issues easing by the end of the first half of FY27, the key signposts fund managers are tracking are whether subcontractor and labour availability in the US network stabilises on that timeline, how European conditions evolve, and whether the fresh US$400 million buyback is sufficient to offset the earnings downgrade in the eyes of a market that had come to expect consistent guidance delivery from Brambles.