F&P Appliances stock tumbles

Friday 26th November 2010

Shares of Fisher & Paykel Appliances tumbled as much as 10% after the manufacturer trimmed its full-year guidance and said current weak demand is likely to continue.

The company lowered its guidance for full-year earnings and now expects earnings before interest and tax of $63 million to $70 million, from the $78 million it forecast at its annual meeting. EBIT from appliances is expected to be $28 million to $35 million, and for finance around $35 million, it said.

In August, chairman Ralph Waters said appliance EBIT would at the lower end of a range of $45 million to $52 million, while finance EBIT would be at the top of a range of $25 million to $34 million.

The shares fell 4 cents to 56 cents and earlier touched 52 cents, the lowest since late August. The company today posted a first-half net profit of $11.3 million, compared to a loss of $82.4 million a year earlier, when it took $107 million of charges to reorganise its global manufacturing and write down assets values. Sales fell 6% to $549.9 million.

F&P Appliances "continues to disappoint," said Rickey Ward, equities manager at Tyndall Investment Management. "This is a very difficult environment - people are not spending on anything and these are big ticket items."

Appliance sales weakened by 29% to $37.7 million in Europe in the first half and dropped by 12% to $124.5 million in North America, markets where the company has positioned itself for growth with its 'Global Manufacturing Strategy' which saw it shift plants to lower-cost countries and nearer to export markets. At the same time the company restructured its debt and eliminated jobs.

The changes are beginning to bear fruit, with the company's gross margin rising 4% to $140.8 million in the first half, helped by a more favourable exchange rate.

"Our balance sheet position has strengthened, however appliance market conditions remain challenging," said chief executive Stuart Broadhurst.

The company welcomed China's Haier Group as a 20% shareholder last year, as part of its balance sheet strengthening aimed at keeping creditors at bay. Under the arrangements, F&P Appliances markets Haier products in Australia and New Zealand, while Haier reciprocates in China, where it has 30% market share.

Broadhurst said the company's entry into the Chinese market has been slower than he wanted to see, with delays in getting regulatory approval for products. F&P Appliances is targeting commercial projects in China such as apartment developments, where it needs to be able to offer a full suite of appliances, some tailored to smaller living spaces. It expects to secure an order this year.

In the latest half year, the company has faced significant increases in costs of raw materials such as copper and commodities derived from oil, while steel prices have abated somewhat, Broadhurst said.

The company "is not in a position to pass cost increases on to consumers, given the state of the market," he said.

The deal with Haier meant the company has mostly withdrawn its lower-priced Elba brand from the Australasian market.

The company's appliances unit reported a 7% decline in operating revenue to $476 million, while EBIT climbed 18% to $6.8 million. For its finance unit, EBIT climbed 52% to $18.9 million, reflecting growth in interest and fee income and lower bad debts.

As of yesterday, the shares are rated "outperform" based on the consensus of six recommendations compiled by Reuters.

BusinessDesk.co.nz

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