Yield Declining In GUD?

Shares in Sydney- based industrial and retail products group, GUD Holdings (GUD) suffered in yesterday’s weak trading as analysts caught up with the detail in Wednesday’s earnings release for the 23012-13 year which showed a 15% fall in underling profit.

On a net profit basis, earnings were down a massive 60%, at $31.5 million from $92.8 million but that was due to the $49.4 million capital profit booked from the sale of its holding in Brevile after the competition regulator blocked a takeover bid in 2011-12.

The company’s shares actually rose 2c on Wednesday in the wake of the release of the profit result, but on Thursday they turned lower, dropping nearly 2.6%, or 17c, to $6.41.

1Y GUD – Facing another tough 12 months – without the joys of a special dividend

Investors seemed to realise that after two years of special dividends (and nice fat yields), there will be no repeat in the current year before the profits from the abortive bid for rival appliance maker, Breville, have been exhausted.

Sales fell 2% to $596 million in the year to June as its consumer division, which houses the Sunbeam and Oates brands, took the brunt of weak consumer demand and retail sales, margin slicing by aggressive retailers promoting their own brands and manufacturing pressures, especially in China.

Consumer products performed poorly for GUD Holdings during 2012-13, with revenue dropping 11%, from $219 million to $194 million and earnings before interest and tax fell 40%, from $32.7 million to $19.9 million.

GUD blamed the collapse of Retravision chain during the year, competition from European appliances (are cheaper by the strong dollar) competition and retailers concentrating on their house brands (also made offshore to take advantage of the strong dollar) for the sales and earnings slide in the consumer products business.

Management says Sunbeam is now on top of its problems, directors do not see much relief from the rough trading conditions, although it will be interesting to see how the company handles the weaker dollar and its impact on the cost of imported products going forward.

Given the weak retailing environment, GUD might be forced to absorb some or all of any cost increases resulting from the falling currency.

In its profit presentation, released yesterday, management said that it expecting conditions to remain highly competitive across all business units and that it expects a broadly consistent financial performance in FY 2014.

That means investors can’t expect too much earnings growth for the company, unless there’s a rebound in consumer spending and confidence. And the fall in the value of the dollar will place new pressures on the company as much of its Sunbeam range of small appliances is made offshore.

The company’s industrial products division saw earnings before interest and tax fall 8% to $7 million, while automotive sales rose 2% to $87 million (for the products marketed under the brands, Ryco and Wesfil). EBIT for this business edge dup 1% to $27.9 million.

The water business (Davey water pumps and associated profits) lifted EBIT 11% to $8.3 million in an encouraging return, according to directors.

Shareholders have benefited again in the 2012-13 year (as they did the year before) from special dividends thanks to the sale of shares in Breville Group.

GUD was forced to sell its holding in Breville after the Australian Competition and Consumer Commission refused to approve a bid from GUD.

GUD has declared another 10 cent special dividend, bringing the final dividend to be paid to 36 cents a share. Both dividends are fully franked.

Total dividends for the year amounted to 72 cents per share, consisting of 52 cents in ordinary dividends and 20 cents in special dividends.

With the announcement of the 10 cents special dividend a total of 55 cents per share of fully franked dividends have been returned to shareholders as a consequence of the sale of the Breville stake.

This will likely be the last special dividend, so going forward shareholders should expect a lower yield from now on.

Not helping was the recognition of anther year to challenging business conditions, according to directors.

"It is expected that the Automotive and Water businesses will continue to deliver solid financial performances, with some potential for upside in Davey stemming from improving weather conditions and a lower Australian dollar.

"Demand in Australia across Dexion’s broad product range remains patchy, as business confidence remains low. Further improvements in operational efficiency are flagged, driven by a substantial investment in new plant at Dexion’s Malaysian facility. Additionally, the benefits from the prior year’s restructuring in Dexion Commercial should become evident as demand returns.

"Both Consumer businesses – Sunbeam and Oates – remain focused on delivering new products to their target markets and have substantial programs in place for FY14. In addition Sunbeam is instigating a number of initiatives aimed at building the brand’s standing with specific consumer segments. This involves a revised communication strategy and renewed in-store activation programs.

"To build further scale Sunbeam is pursuing a number of opportunities with potential international alliance partners, along with introducing on-line capability to grow revenue through sales of product accessories," directors said.

That’s what Breville, its one time takeover target, has been doing, especially in the North American markets. If you can’t buy ’em, join ’em!

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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