Bunzl (LSE:BNZL) shares have often been seen a lifeboat for investors in troubled times.
With its exhaustive line of everyday essential products — think food packaging, medical gloves and cleaning sprays, to give a brief flavour — and large exposure to defensive markets, the FTSE 100 company’s has offered typically resilience during turbulent times. It also supplies products across North America, Europe and Asia, which helps earnings with protection from localised issues.
But it’d be a mistake to suggest profits are invulnerable to broader economic conditions. Indeed, Bunzl’s share price has tanked 27.6% on Wednesday (16 April) after warning that economic uncertainty means full-year sales and margins will fall below forecasts.
So what’s going on at the support services giant? And should investors consider buying Bunzl shares on the dip?
Underlying sales down
Due to what it described as “a more challenging economic backdrop,” Bunzl announced that revenues rose 2.6% between October and December at constant exchange rates. Unfortunately this growth was driven by recent acquisitions, as underlying sales actually dropped 0.9% year on year.
At actual exchange rates, revenues growth was even poorer, at 0.8%.
Bunzl said that “adjusted operating profit was down significantly year on year in the first quarter, reflective of an operating margin decline driven by performance in North America and Continental Europe.”
In North America — a region from which 56% of revenues came last financial year — the company said that macroeconomic uncertainty had caused revenues and operating margins to soften. It noted that margin pressures have particularly “amplified challenges specific to our largest business, which primarily services foodservice and grocery customers.”
Guidance slashed
The consequences for Bunzl have been severe, prompting it to pause a £200m share buyback programme to conserve cash (share purchases have totalled £115m to date).
The company has also trimmed back its guidance for financial 2025. It’s now tipping “moderate” revenue growth at constant currencies, “driven by announced acquisitions and broadly flat underlying revenue.” It had previously expected to report “robust” sales growth for the year.
Bunzl added that “group operating margin for the year is expected to be moderately below 8%,” down from 8.3% in financial 2024. This was predicted to be roughly flat year on year before recent trading pressures emerged.
A top dip buy?
While the scale of Bunzl’s problems is pretty startling, could now be a good time to consider buying Bunzl shares on the dip?
Today’s price correction means it trades on a forward price-to-earnings (P/E) ratio of 11.1 times, a substantial distance below its five-year average P/E of 18 times.
Times are tough, but Bunzl is a well-run business with a great history of growth. Indeed, its expertise in the field of acquisitions has led to exceptional long-term profits growth and dividend increases (shareholder payouts have risen every year for 32 years).
Having said that, I’m not planning to buy Bunzl shares for my own portfolio. Battening down the hatches and saving cash is a prudent idea in the current landscape. But I fear this could have significant ramifications for its acquisition budgets — it had committed £700m a year through to 2027 — and as a consequence its growth prospects in the near term and beyond.
With trade war risks escalating, and deflationary headwinds in its markets growing stronger, Bunzl is off my radar for now.
