Bunzl says the North American Distribution recovery is real — even if margin gains are not permanent

A broad-based turnaround that starts with Distribution

Bunzl is not content to call this an encouraging quarter; management is labelling it a turning point. Revenue grew 4.1% at constant currency in the first half, underlying growth hit 3.2%, and the company has now posted five consecutive quarters of underlying revenue growth. The most consequential development is the resilience of the business that spent much of 2025 being fixed: the North American Distribution business. It grew underlying revenue 8% in the period, helped by volumes, new business wins and a sticky grocery customer base. Frank Van Zanten framed the result as the proof that the reorganisation, which had briefly cost the company responsiveness and sales agility, is now bearing fruit:

I believe Bunzl can now deliver on the attributes it has long been known for, attractive compounding growth and resilience, and I expect 2026 to be the foundation for future profit growth.

That conviction is supported beyond the largest business. Volume growth was deliberately emphasized as broad-based across business areas, not solely the U.S. rebound. Foodservice, grocery and health & safety all contributed, while UK & Ireland benefited from the annualization of Nisbets synergies and a one-off property gain. Later, in response to an analyst question about whether the rest of North America ex-Distribution is delivering, Frank pushed back with an unusually direct operational update: “I think the machine is working — the focus is now on growing the business.” The contrast with his own language a few months earlier is stark. In March he told analysts that service levels had recovered to historical highs and that “the local agility has returned… We are in a good position to go out and win.” — Frank Van Zanten, CEO · 2026-03-02 The half-year report moves from ‘positioned to win’ to actual wins.

A capital allocation pivot while M&A remains patient

Strong cash generation has brought the balance sheet back to the centre of the story. Excluding tariff refunds, free cash flow grew 5.6% and cash conversion hit 90% — enough to announce a £500m share buyback while keeping deleveraged headroom for M&A. The stance is notable because, through 2025, the company talked about releveraging into its 2–2.5x net-debt/EBITDA target before returning excess cash. In August 2025, Richard Howes said “we have relevered from 1.3 up to nearly 2x already. So actually, there’s not much further to go.” — Richard David Howes, Chief Financial Officer · 2025-08-26 The current leverage is 1.8x, but the quieter-than-normal M&A period — under £150m spent in 20 months versus roughly £600m over a normal two-year cycle — means management feels there is enough firepower for both bolt-on acquisitions and a buyback. Frank was candid that maintaining discipline is more important than hitting a seasonal target, using the phrase “champagne at the finish” in the Q&A around M&A. The shift is effectively a message to shareholders: the pipeline is active, but the market for sellers is still slow, and Bunzl will return cash while it waits.

The margin windfall is a timing benefit, not a new profit base

For all the operational progress, the 30 basis point operating margin expansion in H1 is less clean than it first appears. Richard Howes explained that roughly half the quarter’s inflation benefit came from selling through lower-cost inventory, which is inherently transient:

“We have already seen gross margins peak in June and reduce in July,” “with selling prices reducing. We are starting to see that happen and we expect that to unwind in H2.” — Richard Howes, Chief Financial Officer · 2026-09-01 The company is explicit that full-year guidance is now for group operating margin broadly flat versus 2025 and modest adjusted operating profit growth — not a step change in profitability. Management believes the exit rate will be a better indicator for 2027.

The tariff refund is a good illustration of why accounting adjustments matter. Bunzl received a U.S. IEEPA refund before the half-year and expects to pass most of it back to customers, which reduced reported revenue by 1.2% with no profit impact. This theme is not unique to Bunzl: the global earnings tape shows retailers such as Best Buy and Burlington applying refunds to margins and cash flow, and the global top keyword list has repeatedly picked up IEEPA refunds and inflation-related profit growth language. Bunzl’s distinction is that it treats this as a pass-through rather than a tailwind, while still benefiting from the underlying plastic-and-chemical inflation in H1.

The risk embedded in the improved outlook is heavy on price normalization. The CFO warned that prices reduced in certain categories starting in July, that variable costs tied to stronger performance are rising, and that H2 comparisons get harder as the new U.S. business wins from late 2025 annualize. In other words, Bunzl is telling investors not to extrapolate gross margin momentum. That honesty is refreshing, but it also underlines that the first half’s profit beat trades off an inventory and pricing timing effect. The true test of the recovery will be whether group volume growth can stay near 3% once the inflation tailwind fades.

For now the market has a rare combination in Bunzl: a genuine operational turnaround in its largest business, an upgraded but measured profit outlook for 2026, and enough cash balance to move beyond the crisis-era conservatism of the last two years. Whether 2026 becomes the promised “foundation for future profit growth” depends less on inflation mechanics and more on repeated distribution wins and finally closing some of the 1,300 identified acquisition targets.