Breville brews another solid result
Back in February, Breville Group’s (ASX:BRG) HY24 results divided the investment community. Despite improved gross margins and efficient cost control measures, revenue fell slightly short of consensus expectations, prompting some analysts to suggest the company should have engaged in more promotional (read: discounting) activity to drive sales. Of course, strategically, this can weaken a brand and its long-term value.
Good thing the company ignored those analysts who have never run a business or managed a global brand. Breville Group’s FY24 Performance is now being described as a solid year with strategic tailwinds, despite macroeconomic headwinds.
And when you read the results, keep in mind this is a company positioning a higher-end brand of coffee maker in a country (the U.S.) that is only just beginning its barista-coffee-at-home journey.
Breville Group’s full-year FY24 results have demonstrated resilience, with the company delivering an eight per cent year-on-year (YoY) increase in earnings before interest and taxes (EBIT) of $185.7 million. EBIT slightly surpassed the higher end of the company’s guidance of between five per cent and 7.5 per cent, and also beat consensus estimates of $183.8 million by approximately one per cent.
A key driver behind the result was a robust expansion of gross margin, which increased by 140 basis points, coupled with accelerated revenue growth in the second half of the fiscal year (2H24). Good thing the company didn’t listen to those analysts at the half-year result! Breville Group’s FY24 revenue grew 3.5 per cent and reached $1.53 billion, largely in line with consensus. Notably, 2H24 revenue growth accelerated to 5.7 per cent YoY, highlighting the company’s ability to capitalise on improving market conditions in the latter part of the year.
The ‘global product’ division, a cornerstone of Breville Group’s growth plans, reported FY24 sales growth of two per cent, on a constant currency basis compared to 2023. This growth was bolstered by a remarkable 7.1 per cent sales increase in 2H24, which helped offset the slight decline of 1.3 per cent seen in the first half, as noted above. The division also saw an improvement in gross margin, which rose to 37.7 per cent, up from 36.8 per cent last year.
Regionally, Breville Group experienced varied performance. The Americas and Europe, Middle East, and Africa (EMEA) regions recorded strong constant-currency sales growth of 2.9 per cent and 8.5 per cent, respectively, for FY24, with even more impressive gains of 12.0 per cent and 12.3 per cent in the second half. However, the Asia-Pacific (APAC) region faced challenges, with a 6.4 per cent decline in FY24 sales, further impacted by a 7.1 per cent drop in 2H24. This was largely due to underperformance in distributor markets (where third parties are used), though direct markets like Australia, New Zealand, and South Korea showed signs of recovery in the latter half of the year.
Breville Group’s smaller ‘distribution’ segment also contributed positively, with FY24 gross profit increasing by 16.1 per cent against a softer year last year, highlighting effective cost management and operational efficiency.
The company’s strategic focus on inventory management yielded significant results, with inventory levels at June 30, 2024, reduced to $341.6 million from $439.6 million the previous year. This reduction played a crucial role in freeing up working capital, enabling Breville Group to end the fiscal year with a net cash position of $53.6 million, a notable turnaround from the net debt of $121.3 million recorded in the previous year.
In recognition of its strong financial performance, Breville Group declared a final dividend of 17.0 cents per share (cps), fully franked, exceeding market expectations of 16.0 cps and up from 15.5 cps in the prior year.
The company is poised to benefit from a robust pipeline of new product developments and expanding market reach, but macroeconomic headwinds, including potential economic slowdowns in the U.S. and geopolitical risks, may pose challenges. As the company has previously noted, its expense budget remains flexible, and data-driven, aiming to deliver EBIT growth under various scenarios.
Breville Group’s FY24 results, while only slightly beating expectations, align with the growth themes we have previously written of. The successful reduction of inventory and the shift back to a net cash position are key positives, setting a solid foundation for the company as it enters FY25.
Analysts will, of course, will focus on the next twelve months rather than look out ten years. As such, they will acknowledge the company-specific strengths but maintain caution given broader macroeconomic uncertainties and geopolitical risks. As these exogenous variables are ever present, we believe investors should behave like investors rather than speculators and focus on what is known rather than worry about what might be.
The Montgomery Small Companies Fund owns shares in Breville Group. This article was prepared 21 August 2024 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Breville Group, you should seek financial advice.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
