GUD Holdings: Good buy, but not great

GUD Holdings (ASX: GUD) is the owner of a number of iconic Australian brands including Sunbeam small appliances and the Davey water pump. Showing great efficiency, the company was one of the first to release its full-year results for the financial year (FY) ending June 30.

While sales fell 2% to $596 million, which isn’t too bad considering the tough economic environment, underlying profit after tax fell a worrying 15% to $37 million. The ‘problem child’ for the company was in its consumer division, which houses the Sunbeam and Oates brands where tough market conditions led to earnings before interest and tax collapsing by 40%.

This poor performance of GUD’s consumer division, while there could be brand specific issues, provides investors with a barometer of what to possibly expect from other companies exposed to the small appliance sector.

In its presentation, management stated that it expected conditions to remain highly competitive across all business units and that it expects a broadly consistent financial performance in FY 2014. Put another way, it looks like GUD’s earnings are going to remain subdued over the next 12 months.

Shareholders have benefited over the past two years from special dividends thanks to the sale of shares in Breville Group (ASX: BRG). The holding in Breville was sold after the Australian Competition and Consumer Commission (ACCC) rejected an acquisition GUD made for Breville. GUD has declared another 10 cent special dividend, bringing the final dividend to be paid to 36 cents per share. This will likely be the last special dividend, so going forward shareholders should expect a lower yield.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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