The Breville Group Ltd (ASX:BRG) share price has surged more than 4.4% to $8.90 today after the kitchen appliance company delivered a solid first-half result.
The main highlights from the report included:
- Revenue increased by 2.4% to $339.2 million
- Earnings before interest and tax (EBIT) increased by 6.7% to $49.1 million
- Operating margin increased by 60 basis points to 14.5%
- Net profit after tax (NPAT) increased by 9.4% to 33.7 million
- Earnings per share (EPS) increased by 9.4% to 25.9 cents
- Interim dividend increased by 6.9% to 15.5 cents per share with 60% franking
- Operating cashflow improved by more than $30 million to $23.9 million
- Net cash of $32.7 million
Overall, this was a pleasing result for Breville in what is a very competitive sector of the retail market.
The Global Product segment, which includes Breville designed and developed appliances, was the key driver of the result with overall sales and EBIT growing 8% and 12% respectively. Growth was especially strong in Australia and New Zealand where sales grew by nearly 20%.
Unfortunately, its distribution business, which includes the sale of third-party products such as Breville-Nespresso Machines, Kambrook appliances and Phillips grooming products, did not fare so well. Revenue fell by 13.7% with EBIT falling by 36% to just $3.3 million.
Nonetheless, the strong performance from the Global Product segment, along with a significant reduction in working capital, resulted in an impressive improvement to operating cashflow. Notably, Breville managed to reduce its inventory levels by more than $23 million over the period thanks to management initiatives which were implemented in the second half of FY16.
Pleasingly for shareholders, the company managed to deliver positive results against its three most important strategic objectives – to lower its inventory to sales ratio, accelerate EBIT growth and to re-allocate more of its cost-base towards marketing and research and development.
Outlook
Breville did not provide any specific earnings guidance for the remainder of the year, but did note that it expects the EBIT growth rate in the second half of FY17 to be "generally consistent with the first half of the financial year".
Is it a buy?
Although there is little doubt that this was a good result from Breville, I feel much of the upside has already been priced in by the market.
The shares are currently trading hands at more than 20x earnings and now offer a partially-franked dividend yield of around 3.5%.
In light of this, I would suggest investors remain patient and wait for a more attractive entry point or consider other alternatives that offer a larger margin of safety.
