Brambles Ltd has cut the profit guidance for its biggest business unit, the pallet operations in the Americas, because of the looming US recession.
Chairman Graham Kraehe told the company's annual general meeting in Sydney that operating profit at its CHEP Americas business would fall 10 per cent this financial year.
The comments sent Brambles shares down 11.51 per cent, or 83 cents to $6.38 at 1447 AEDT against a gain of more than three per cent on the broader market.
It was the weakest share price for Brambles since the merger of its separately listed Australian and British entities into a single holding company in November 2006.
Brambles is the world's biggest supplier of pallets and the Americas pallet business contributes about 42 per cent of the company's total operating profit.
"Our customers may continue to be affected if the consumer environment remains difficult and that this has the potential to further dampen organic growth," Mr Kraehe told the shareholders' meeting.
"The operating environment for our business has ... been challenging and may remain so through 2009 and possibly beyond, particularly in the US and Europe."
Brambles said its CHEP Europe, Middle East and Africa (EMEA) division was expected to deliver earnings growth but this outlook could change the European recession worsened.
CHEP EMEA contributed about 37 per cent of company profits in fiscal 2008.
Mr Kraehe said profit would be lower in the US because of the economic slowdown as well as costs related to upgrading the pallets and expenses from a renegotiated agreement with supermarket chain Walmart.
Brambles last month successfully renewed its pallet contract with the world's biggest supermarket chain, Walmart, although the implementation cost for Brambles was expected to be $US30 million ($A45.94 million) in fiscal 2009.
Brambles chief executive Mike Ihlein said the company would be relatively shielded from the cutback in consumer spending as its pallets were used mostly to transport essential goods such as groceries.
"Consumers, generally speaking and particularly in the US, have less money in their pockets," Mr Ihlein said.
"We're predominantly in groceries-type products, not in the discretionary spending."
Mr Kraehe said operating profit for the total group was expected to be broadly in line with 2007/08.
"This assumes no further deterioration in market conditions," he said.
Mr Kraehe said sales revenue during the first four months of 2008/09 grew at four per cent, compared with the same period last year on a constant currency basis.
Sales at CHEP Americas was up four per cent in the four months as was CHEP Europe, Middle East and Africa.
CHEP Asia-Pacific sales were up three per cent and Recall, the company's information management business, grew revenue by six per cent over the same four-month period .
Mr Kraehe said Brambles had increased revenue by winning new business, which more than offset the decline in business from existing customers.
Brambles had strong cash flow from operations, significant unused credit facilities and no major debt refinancing before November 2010, he said.
Brambles planned to reintroduce a dividend reinvestment plan to coincide with the payment of the 2009 interim dividend, Mr Kraehe said.
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