It was not the way Tom Gorman wanted to end his seven-year stint running logistics giant Brambles.
The world's largest pallet operator issued a sharp earnings downgrade on Monday after destocking by US retailers in December hurt business in its most important market. Brambles shares fell almost 17 per cent.
Gorman, who steps down as chief executive in February, says he is "embarrassed" by the earnings downgrade, which is bad timing for him personally as it comes just weeks before he steps down. He went on to tell investors it shouldn't be able him but he was "personally gutted" because he prides himself on his reputation with the investment community for delivering on promises.
Gorman's contrition is rare for a chief executive of a major company but is a reflection of the former Ford Australia chief's integrity and his disappointment at breaking a seven-year track record of meeting earnings forecasts.
In an interview with this columnist in 2009, Gorman said he wanted to break with tradition and be the most boring chief executive in the company's history – a quip at the pallet operator's colourful history and a revolving door of chief executives. He made good on his promise, giving Brambles some much-needed stability and credibility with the market following five changes of chief executive in eight years.
Brambles shares had increased around 70 per cent since Gorman became chief executive in 2009.
Gorman mended the company's relationships with its key customers such as WalMart and Nestle, saw off competition from a new plastics pallet rival, Intelligent Global Pooling Systems (iGPS), diversified the business and sold its document management arm, Recall.
The earnings downgrade will not tarnish his reputation but it is not the swansong investors had hoped for either. Gorman announced in August last year he was retiring in February after seven years at the helm. He will be replaced by Graham Chipchase.
There has been concern since the management change was announced that the company would struggle to meet earnings guidance up until 2019 and it looks like those fears are now being realised although the destocking issue took place abruptly. Management never saw it coming.
Brambles now expects constant-currency revenue growth of about 5 per cent in the six months ended December 31, and constant-currency underlying profit growth of about 3 per cent. This means growth for the full-year would come in below the current guidance range of revenue growth of 7 per cent to 9 per cent and underlying profit growth between 9 per cent and 11 per cent.
US retailers are sending back pallets, which costs Brambles money because it has to transport and store them. More pallets are now coming in than they are sending out. Brambles had no indication there would be a problem when it reaffirmed guidance on November 16. Gorman says while the company monitors weekly sales revenue data, demand fell significantly at the back end of December.
The problem for investors is working out if this is a long-term trend in the US retail market and what is causing it.
Gorman says it is too early to tell and the company will have more data to work with when it reports first-half results in February. He will not be drawn on whether Donald Trump's presidency was impacting the retail market but did note there had been a "radical shift" in US politics. "Whether it is due to the election ... it is very difficult for me to [it] call from here and it would be dangerous for me to pin it to that anyway," Gorman says.
