Why the Breville (ASX:BRG) share price is charging 7% higher today

The Breville Group Ltd (ASX: BRG) share price is on the move this morning following the release of its first half results.

At the time of writing, the appliance manufacturer’s shares are up 7% to $32.85.

How did Breville perform in the first half?

For the six months ended 31 December, Breville reported a 28.8% increase in revenue to $711 million. This comprised Global Product revenue growth of 34% to $592.9 million and Distribution revenue growth of 7.9% to $118.1 million.

Management advised that its strong top line performance was driven by growth in all regions and categories. This was supported by the working from home (WFH) and premiumisation trends, as well as its operational decision to invest in inventory in May following its capital raising.

Things were even better for its operating earnings. Breville posted a 32% lift in earnings before interest, tax, depreciation and amortisation (EBITDA) to $112.4 million.

It notes that this was driven by its strong revenue growth and improved gross margins. The latter was thanks to lower promotional spend, a swing in mix to premium products, and a weaker US dollar, which more than offset increased freight costs.

On the bottom line, the company delivered a 29.2% increase in net profit after tax to $64.2 million.

However, despite this strong profit growth, the Breville board decided to slash its interim dividend by 36.6% to a fully franked 13 cents per share. The company advised that this reflects its decision to reduce its target payout ratio to allow continued funding of growth opportunities on a cash-neutral basis.

It also advised that the previously activated dividend reinvestment plan has been suspended until further notice.

Management commentary

Breville’s CEO, Jim Clayton, was pleased with the half.

He said: “A good half for the Group, building on the momentum seen over the last few reporting periods and benefiting from the WFH phenomenon. All regions and categories delivered growth, despite experiencing very different and erratic retail backdrops.”

“We continued to accelerate our double-digit EBIT growth, while tactically investing in selected growth drivers and capabilities. Geographic expansion is delivering an increasingly diversified and balanced global portfolio, adding growth and resilience in a dynamic market environment.”

Outlook

Positively, the strong first half has led to the company upgrading its guidance for the full year. This appears to have offset any disappointment around the dividend cut and helped drive the Breville share price higher today.

According to the release, assuming no significant change in economic conditions in its major trading markets, it expects FY 2021 EBIT to be approximately $136 million. This compares to its previous guidance of $128 million to $132 million.

It also advised that its investment in New Product Development and Go To Market (NPD & GTM) as a percentage of net sales is approaching the strategic goal of 12%. In light of this, investment levels “will be flexed in 2H 21 depending on the sales growth delivered.”

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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. 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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