UK’s Bunzl expects higher annual operating profit as own brand demand picks up

By Eva Mathews

(Reuters) -British business supplies distributor Bunzl forecast a rise in full-year adjusted operating profit on Tuesday, betting on higher margins from its healthcare and hygiene products and booming demand for its own brands.

Shares in the company rose more than 3%.

Bunzl, which sells products ranging from plastic spoons to gloves and other personal protective equipment, has stepped up acquisitions in the past few years.

This has helped sustain growth as the pandemic-fuelled boom in COVID-related sales wanes, and the FTSE 100 firm has also seen demand for its own brands pick up.

“About 25% of sales is made by our own brands, which makes our business stick more with customers and … we can make higher margins,” CEO Frank van Zanten said in an interview.

Demand for higher-margin sustainable products compared to single-use plastic is also a bright spot, van Zanten added.

Bunzl now expects its adjusted operating profit for 2023 to be moderately higher than 2022 at constant exchange rates, with operating margin slightly higher than the prior year.

Still, Bunzl’s first half of the year was weighed down by weaknesses in its largest market North America, as destocking and inflationary pressures hampered demand in the food service sector.

Total revenue for the six-month period ended June 30 grew 0.6% to 5.91 billion pounds ($7.46 billion) at constant exchange rates.

Underlying revenue in North America for the period dipped 3.1%.

While inflation levels in regions like Europe and the UK remained elevated, Bunzl said it was able to pass on high raw material costs to customers through price hikes. In the United States, freight costs fell, wage growth slowed and overall inflation eased.

“Inflation easing in the U.S. is a double-edged sword. On the one hand, lower input costs have helped margins push higher over the half, but the flip side is a drop in revenue as the pricing on a lot of Bunzl’s products can be linked to inflation,” said Matt Britzman, analyst at Hargreaves Lansdown.

Bunzl’s shares, which have fallen 13% in the past 12 months, were up 3.2% and among the top gainers on the FTSE 100 as of 0806 GMT.

($1 = 0.7920 pounds)

(Reporting by Eva Mathews in Bengaluru; Editing by Subhranshu Sahu and Susan Fenton)