Why the McPherson's Ltd share price is soaring today

Consumer products supplier McPherson's Ltd (ASX:MCP) reports strong results.

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Health, beauty and household consumer brand, McPherson's Ltd (ASX: MCP) announced a strong set of numbers this morning, following the lead of fellow competitor BWX Ltd (ASX: BWX).

About McPherson's

McPherson's was established in 1860 and is currently the leading supplier of health, beauty and consumer durable and household products in Australasia. The company enters into supply agreements for exclusive rights to distribute goods such as fragrances for brands like Gucci, Dolce & Gabbana and Hugo Boss. A majority of its revenue is derived from its household consumables division, which owns the Manicare, Swisspers and Multix brands (to name a few).

Results summary

Today, McPherson's announced its 2016 half-year results, with underlying net profit before tax coming in line with expectations at $12.4 million. Sales revenue decreased 8.9% to $168.3 million compared to the prior corresponding period. However, existing business sales grew 6.2% on an adjusted basis when excluding its recently divested Housewares division.

Divisional performance

Impressively, McPherson's key divisions reported strong sales in the first half of 2016, despite the headwinds of a weaker Australian dollar (which directly affects McPherson's ability to source products). McPherson's health and beauty division increased sales by 11%, accounting for 48% of group revenue. Its home appliances division reported an 18% increase to sales, contributing 23% to group revenue. Finally, its second-largest household consumables division (which includes the Multix brand) contributed to 25% of group revenue, despite margin erosions due to currency fluctuations.

Dividends

The Board declared a fully-franked dividend of 6 cents per share for the half, implying a trailing yield of 9.8% (13.9% gross of franking credits) based on the share price at the time of writing.

Outlook

Importantly, McPherson's pleased the market by announcing a positive outlook for full year results. Despite strong currency headwinds adversely affecting its costs, managing director Paul Maguire announced that the group remains well placed to grow its brands domestically and internationally, leading to resilient growth in underlying earnings.

Foolish takeaway

Today's results demonstrate McPherson's business transformation strategy is taking hold and that earnings attrition is likely to subside from here. Investors have clearly taken a liking to management's view of the company's outlook, boosting its shares by 17%. Whether or not this continues is yet to be seen, but today's results show there's a lot to like about this robust business.

Motley Fool contributor Rachit Dudhwala has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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