Shares of Breville Group Ltd (ASX: BRG) are enjoying a solid day of trading following the release of its first half FY16 results.
It appears investors have breathed a sigh of relief following what has been a pretty tough two years for the appliance maker and its shareholders. The shares have gained as much as 11.5% in early trade making it one of today's best performing stocks on an otherwise uninspiring day for the broader market.
Highlights from Breville's interim results include (all figures compared to the prior corresponding period):
- Revenue growth of 12.7% to $331.2 million
- EBITDA growth of 7.4% to $50.7 million
- Earnings before interest and tax (EBIT) margin of 13.9%, down from 14.8% in the pcp
- Net profit after tax (NPAT) increased by 4% to $30.8 million.
- Operating cash flows for the half of negative $6.1 million
- Earnings per share increased by 4% to 23.7 cents
- Dividend per share increased by 3.6% to 14.5 cents
For investors who are unfamiliar with Breville's operations, it conducts business in three distinct operating segments – Australia and New Zealand (ANZ), North America and the rest of the world.
North America
The North America segment was the clear standout in the first half with revenues and earnings increasing by 30.8% and 39.9% respectively.
This segment now makes up around 63% of total group earnings and is perhaps the most important segment for the company moving forward.
Operating margins in this segment improved to 19% driven primarily though a better mix of higher margin products.
Australia and New Zealand (ANZ)
In contrast, Breville's ANZ operations lagged well behind with revenue and earnings falling by 2.8% and 30.7% respectively.
Although this segment makes up nearly 42% of total group sales, its earnings contribution for the half was less than 25%.
Conditions have been difficult in this segment with the lower Australian dollar causing operating margins to fall by nearly 29% to just 8.1%. Breville has been unable to regain margin through price increases due to fierce competition in the small appliance sector including from companies like GUD Holdings Limited (ASX: GUD) who owns Sunbeam.
Rest of the World
Although the rest of the world operation only makes up around 12% of total revenues, it made a similar contribution to earnings as the ANZ segment. Sales grew by 15.9% in the first half with earnings growing at 27.7%.
It is clear from these segment results, that the lower Australian dollar is having a significant impact on Breville's domestic operations with an inability to recover costs through higher prices. Conversely, strong growth in North America and the rest of the world is helping to offset these losses leading to overall modest profit growth.
The company remains in a healthy financial position with $38.7 million in cash on the balance sheet and total borrowings of $35.7 million.
Outlook
Based on the company's first half performance, Breville expects full year FY16 EBIT growth in the mid-single digits compared to FY15.
Foolish takeaway
Although Breville's share price has bounced strongly today, this may have more to do with the lack of surprises in the report rather than from its reported profit growth or optimism about the company's growth outlook.
Earnings growth is likely to remain subdued for at least the next couple of financial years and this has already seen the share price struggle to make consistent gains over recent years.
As a result, I wouldn't be rushing out to own the stock just yet, but I would be happy to add it to my watchlist and keep a close eye on any new developments.
