Breville Shares Steam Ahead On Bullish Outlook

By Glenn Dyer | More Articles by Glenn Dyer

Shares in Breville, the small appliance maker and distributor surged more than 30% at one stage yesterday after it released a bullish half-year trading report and boosted full-year forecasts and interim dividend.

On top of that the company explained why it thinks it won’t be hit by the fallout from China’s coronavirus crisis which worsened yesterday with a surge in deaths and new cases.

Looking to the year June Breville now says its earnings before interest and tax for the full year would sit around $110 million, up 13% increase on 2019.

Breville boosted its dividend 10.8% to 20.5 cents a share, payable on March 18. That will please Solomon Lew, the Melbourne retailer and investor whose Premier Investments controls around 26% of Breville.

Breville shares ended up 29.3% to $25.84.

The company reported a surge in both revenue and sales for the first half, with revenue growing 25.4% to $552 million while net profit after tax was up 14% to $49.6 million, despite a 1.2% drop in margins fuelled by a strong US dollar and the effects of newly implemented US tariffs on imports from China.

Breville does the majority of its trade in North America, but following the US-China trade war, the company has moved to also focus expansion on other markets such as the UK and Europe.

That saw revenue for its UK and European operations grow 63% for the half to $83.7 million, well above the 20.1% growth seen in its North American segment and ahead of sales in Australia for the first time.

CEO Jim Clayton said the first half was a solid result for the group, but said he remained “mindful” of the global political and economic environment.

“We had good growth across all regions and categories and continued to deliver double-digit EBIT growth. Successful European expansion continued, diversifying our global footprint and adding growth and resilience to the portfolio,” he said.

On the impact of the coronavirus crisis Breville was quite upbeat, saying in the half-year report:

“With regard to the specific impact of the Coronavirus situation on Breville, there are three key considerations. Firstly, we do not have any manufacturing partners, or parts suppliers, located in the Hubei Province.

“As at 13 February 2020, our manufacturers were coming back online after CNY (Chinese New Year) having implemented the safety processes as defined by the Chinese government. This means that the post-CNY production ramp-up is likely to happen more slowly than in prior years.

“Secondly, for unrelated reasons, Breville is holding finished goods inventory above our normal equilibrium levels: the Brexit insurance policy, Europe running unconstrained, and the US tail driven by our price increases post the tariffs.

“In addition, each year we systemically buy forward a few weeks beyond CNY as a hedge against a slower ramp-up post-holiday.

“These higher inventory holdings are in effect a buffer for any slower post CNY production ramp-up.

“When combined with the fact, that 2H is the low part of the year this means, as a general rule, that our manufacturers have flexibility in the rate at which they build back to a throughput level sufficient to meet Breville’s needs for 2H.

“Thirdly, as a sales market, China is immaterial to the group and is recorded in the ROW (Rest of The World) segment,” the company told the market yesterday.

Glenn Dyer

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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