GUD Holdings punished

The manufacturer of Sunbeam appliances, GUD Holdings (ASX: GUD), has seen its shares hammered down more than 10% after the company said it expected its first half result to be up to 30% below last years.

In mid-afternoon trading, GUD shares were trading at $4.79, down 10.5%, and a whopping 70% down in just the past six months. According to Google Finance, GUD has a trailing dividend yield of 17%, but investors should be aware that that is deceptive. The dividend this financial year is likely to be much lower, despite the company declaring that it net profit for the full year is likely to be within guidance.

At its AGM in October, Managing Director Jonathan Ling said he expected earnings before interest and tax (EBIT) to be 20% lower than the 2013 financial year. What is a major concern is that the 2013 result was also 20% lower than the previous year, resulting in underlying net profit after tax falling 15% to $37.4 million.

What will be also be a worry for management is that earnings in its key Consumer division, which contains the Sunbeam and Oates brands, was down 40% in 2013. Diversification through the acquisition of Dexion, which makes shelving, racking and integrated systems used in logistics, storage and warehousing, hasn’t been the panacea the company had hoped. And with the news that Holden will pack its bags in 2017 is probably not good news for GUD’s Automotive division, which was the company’s largest earner in 2013.

The main issue for GUD is that its Sunbeam products face serious competition from private label branded products, as well as Breville Group (ASX: BRG) and cheap imports from Europe. Stores like David Jones (ASX: DJS) and Harvey Norman (ASX: HVN) are happy to stock whichever products sell the best.

Foolish takeaway

GUD management have a major task ahead of them in turning Sunbeam results down. It seems fairly likely that if the tough conditions continue, GUD will be announcing another profit downgrade early next year.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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