Manufacturer of Sunbeam appliances, GUD Holdings (ASX: GUD), yesterday reported that its net profit for the six months to December 2012 was down 21% to $18.2 million, compared to the previous year. The company also announced that the second half is likely to also be down on the previous corresponding period.
The fall in profit was led by a 38% fall in earnings before interest and tax (EBIT) in the company's largest division, which manufactures and sells Sunbeam electrical appliances and Oates cleaning products. In fact, three of its four divisions reported falls in EBIT.
Declining sales of Sunbeam products were due principally to increased competition from low priced, home branded products, inroads from European brands and the collapse of electrical retailer, Retravision. Sunbeam has been forced to cut its prices, while Oates has come under pressure from grocery and hardware customers.
Sounds like Bunnings and Coles – both owned by Wesfarmers Limited (ASX: WES) and Woolworths Limited (ASX: WOW) and its new hardware chain, Masters, have been putting the pressure on Oates to cut its margins.
GUD's result is in stark contrast to its main competitor, Breville Group (ASX: BRG), which has expanded into the US and other offshore markets and is reporting growing earnings. Ironically, GUD Holdings tried to take over Breville in 2009 offering $2.20 a share, but was knocked back by the Australian Consumer and Competition Commission (ACCC). GUD sold its 30% share in Breville for around $3 a share, in February 2012. Breville's shares closed at $6.70 today.
GUD now has to implement several strategies to turn around its consumer products division. The company announced that is implementing a cost cutting program, looking for alliances in offshore markets to build scale and will revise its spread of products. (Something Breville had to do some years ago).
The Foolish bottom line
More and more international companies are entering the Australian market, as their home markets, particularly in Europe, struggle. Woolies and Wesfarmers aren't likely to let up the pressure on suppliers and retailers are increasingly looking to sell higher margin home branded products.
Despite paying 36 cents in dividends, including a 10 cent special dividend, this half, GUD Holdings appears to have a tough road ahead to rebuild its consumer division and the Sunbeam brand.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Woolworths.
