GUD Holdings share price storms higher on FY 2020 result

The GUD Holdings Limited (ASX: GUD) share price was on form and charged higher on Tuesday following the release of its full year results.

The specialist products company’s shares rose 4% to end the day at $11.73.

How did GUD perform in FY 2020?

For the 12 months ended June 30, GUD reported a 0.9% lift in revenue over the prior corresponding period to $438 million.

This comprised revenue of $330.7 million from its Automotive segment and $107.3 million from its Davey segment. The latter was the driver of growth in FY 2020, reporting a 3% increase year on year. Whereas Automotive revenue was largely flat on the prior year.

Things weren’t quite as positive for its earnings. On a reported basis, GUD posted a 15.4% decline in earnings before interest and tax (EBIT) to $74.3 million and a 22.1% reduction in net profit after tax to $43.7 million.

Management advised that this reflects $6.5 million of significant items. Approximately $4.9 million of these items were non‐cash and relate to implementing the Davey’s Product Cycle Plan and organisational restructuring plan. There was also an impairment to the Monarch brand, as well as restructuring costs associated with AA Gaskets ceasing manufacturing and relocating to the Ryco facility in Altona North.

On an underlying basis, its EBIT fell 9.9% to $80.7 million and its net profit after tax dropped 16.3% to $48.2 million.

The decline in its underlying earnings was largely due to the impact of the pandemic on demand following partial and total lockdowns. Reseller destocking also weighed on its operating leverage. And while cost savings were made from government COVID-19 subsidies, these were offset by higher operating costs under COVID‐19, second half factory load utilisation, and foreign exchange impacts.

This reduction in profitability ultimately led to the company slashing its final dividend by almost two-thirds from 31 cents per share to 12 cents per share.

Managing Director, Graeme Whickman, commented: “FY20 was certainly a year of two parts and the result demonstrated the relative resilience of the GUD businesses. After a solid first half, in February we began to see impacts from COVID‐19 at the supplier level. Pleasingly, we successfully navigated these first challenges, but from late March we saw revenue impacts from partial or full lock downs in Australia, New Zealand and Europe impact on underlying demand exacerbated by resellers reducing inventory levels as they sought to preserve their balance sheets.”

Outlook.

Its FY 2020 performance might have underwhelmed because of the pandemic, but its outlook for the year ahead was a lot more positive.

Management notes that Automotive sales in June and the first part of July are above the prior comparable period and show strong double‐digit demand growth.

Though, it does expect this demand to moderate as the year progresses and pent up demand reduces and the consequences of changes in government stimulus impact through FY 2021.

Management also spoke positively about the Davey segment. It notes that the potential recovery of export markets and a continuation of very early but encouraging demand in Australia, means it sees scope for unit and revenue growth in FY 2021.

Mr Whickman concluded: “We have recently seen encouraging revenue improvements but remain mindful that it may be assisted by pent up demand and government stimulus. The demand environment is too dynamic to provide reliable guidance with evolving government stimulus, social distancing and mobility restrictions.”

The company intends to provide a further update at its annual general meeting on 27 October 2020.

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Motley Fool contributor James Mickleboro has no position in any of the 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 Scott Phillips.

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