Sunbeam appliances owner GUD Holdings Limited (ASX: GUD) has seen its share price gain more than 5% today, after posting a spectacular rise in reported net profit.
Net profit after tax for the consumer appliances maker soared from $4.8 million for the six months to December 2013, to $17.3 million in the last half year period. Although last year's half year result included $10.1 million in restructuring costs.
Revenues were virtually unchanged from the prior period at $297 million, and the company declared a fully franked dividend of 20 cents, compared to 18 cents in 2013. At the current share price of around $7.16, that represents a dividend yield of 5.6% or 8% grossed up.
GUD's restructure appears to be on track with these results, but still has some work to do with its primary brands Sunbeam and Davey (water-related products). Both divisions are still suffering falling revenues, but cost cutting has seen performance improve. That can't continue forever, so the company needs to find ways of growing revenues.
As part of that strategy, GUD announced a joint venture with US-based Jarden Corporation, which had revenues of US$7.4 billion in 2013. Jarden has purchased 49% of Sunbeam, while GUD acquired 49% of Jarden's Asian sales and marketing business. Jarden owns the Sunbeam brand globally, apart from Australia and New Zealand.
The new joint venture is expected to generate sales of around $140 million annually from this financial year. Interestingly, GUD is forecasting what appears to be conservative earnings before interest and tax (EBIT) of between $55 and $60 million in the 2015 financial year, given the $27.9 million in the first half.
At current prices, GUD appears to be fairly priced, and while the dividend yield might be attractive, concerns remain over the company's ability to generate long-term earnings growth. Increased competition for Sunbeam, from imported brands as well as strong local competitors such as Breville Group Ltd (ASX: BRG), is unlikely to let up, and with no clear competitive advantage, Foolish investors might want to steer clear of GUD Holdings for now.
