Breville Group Ltd (ASX: BRG) the developer and distributor of small kitchen appliances such as Breville, Kambrook and Ronson, had a mixed full-year result, which sent the stock down 18.5% to a 52-week low of $6.95 in late August. It has recovered somewhat, but is still near its lows. There are concerns about how this former high-flying stock will be in FY 2015.
Here's what drove it down and what the company's prospects may be for FY 2015.
Income loss from end of Keurig agreement
FY 2014 revenue was up, but due to the end of its distribution agreement with US coffee maker Keurig Green Mountain (NASDAQ: GMCR) and weaker sales in Australia, net profit slipped 1.9% down.
Currently, it is $7.60, up 9.35% from that low. The company raised full year dividends and the stock has a decent 3.5% yield fully franked.
Growth in UK and Asia supporting earnings
Its UK business, which started in FY2014, with the new Sage brand product line has performed well. Together with its Asia and Middle East business, Breville's rest of the world segment saw a great rise in revenue and EBIT.
Breville Group has had four strong years of earnings growth up to 2013. FY 2014 was mixed. I think it is still too early to say if the UK and Asia growth can offset the Keurig related revenue loss enough. There is still room to grow in the US as well, so this could be just a short-term revenue setback.
Solomon Lew and management changes
The stock is down from highs near $10 in March. Its largest shareholder, Solomon Lew as the chairman of Premier Investments Limited (ASX: PMV), holds about 30% of the company.
It is growing its influence on Breville's board. Separately, the company has installed an interim CEO after former CEO Jack Lord left the position. A change in management and direction may make a difference over the next year.
The shock 18.5% share price drop may be a market over-reaction. Investors are used to the company raising earnings regularly, so there was a quick exit. It may be short-lived, so I wouldn't count the company out, nor would I stop watching the stock.
With businesses constantly evolving, you have to look at a company's track record. For example, there is one more company with impressive results recently that looks to be on a clearer pathway of future earnings growth than Breville Group.
Combined with a reliable growth record, this small-cap stock was dubbed The Motley Fool's Top Stock of 2014-2015 and we think this is just the beginning.
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