Will Margin Squeeze for Brambles Expand the Pooling Pie?

Good news for value hungry customers, as competition in the U.S. pallet rental market continues to build. Analysts from Macquarie say that competition from plastic pallet rental company iGPS will continue to put pressure on margins. According to Macquarie, margins from CHEP Americas are not likely expand in line with economic recovery.

iGPS has won some high profile CHEP accounts, including PepsiCo and ConAgra. With major competition from the plastic pallet provider in the U.S. market, CHEP will be less likely to pass along labor and lumber price increases, according to Macquarie.

In light of competition in the U.S. and a soft European economy in such CHEP strongholds as Spain and the U.K., Macquarie has cut next year’s earnings-per-share forecasts for Brambles by 12.3 per cent, with expectations for 2012 even weaker, down 16.8 per cent.

One point worth considering, however, is the elasticity of demand for pallets in the U.S. Would discounted pricing increase competition in the existing rental market and limit revenue growth, or would it help expand the overall pooling pie and win over more white pallet business? Your thoughts welcomed.

Source: www.smh.com.au

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