Why the McPherson's Ltd share price soared today

McPherson's Ltd (ASX:MCP) share price jumps on results.

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The McPherson's Ltd (ASX: MCP) share price jumped over 4% in early trade on Tuesday after the Home Appliances and Household Consumables conglomerate reported robust half-year results.

Key highlights of Tuesday's results include:

  • Underlying profit before tax was marginally higher on prior corresponding period at $11.0 million, up 1.2%
  • Statutory profit before tax fell 174% to a loss of $10.0 million as a result of a non-cash impairment
  • Underlying earnings (EBIT) fell 6.6% to $13.5 million
  • Underlying earnings per share rose 1.2% to 7.6 cents per share
  • Net debt reduced by 55.9% to $40.9 million
  • Interim dividend kept constant at 6 cents per share, fully-franked

So what?

McPherson's share price reacted positively to the news that underlying profit returned to growth following years of attrition.

New CEO Laurie McAllister announced that EBIT margins are improving from its core brands  Manicare, Lady Jayne, Dr. LeWinn's and Swisspers, notwithstanding increased competition between Woolworths Limited (ASX: WOW) and Coles owned Wesfarmers Ltd (ASX: WES) driving down prices. This is a positive step for the company.

As part of its results, McPherson's announced a $19.8 million non-cash impairment charge made up of a $12 million write-down of its Home Appliances division and a $7.8 million reduction to the carrying value of its Revitanail business (following poor performance). This dragged statutory profits lower.

Although the company's headline results were weak, management was able to reduce debt by a whopping 55.9% as strong cash flows and well-timed divestments gave rise to increased cash reserves.

Accordingly, I believe the company remains in strong financial shape as a result of these initiatives.

Should you buy?

As I've mentioned here previously, McPherson's business is leveraged, in part, to the housing boom and continues to benefit from increases to housing and discretionary spend.

Although Tuesday's results indicate group sales revenue decreased 11.4% on the prior corresponding period, McPherson's strategy to pursue higher margin products is showing positive signs as it comes to fruition.

With the company announcing an interim dividend of 6 cents per share, investors are more than compensated in the meantime given McPherson's current share price implies a trailing yield of 7% fully-franked.

As such, I believe this is one stock you should take note of today.

Foolish takeaway

McPherson's results indicate the company is on track to grow earnings going forward, as the deleveraging of its balance sheet and shift to higher margin sales should continue to benefit the company.

With the company trading on a trailing price-earnings of under 10x, I think Tuesday's results demonstrate there is still plenty of upside to be had for long-term investors.

Motley Fool contributor Rachit Dudhwala has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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