Breville Group: Brewing Growth Beyond Espresso

This story features BREVILLE GROUP LIMITED. For more info SHARE ANALYSIS: BRG

The company is included in ASX200, ASX300 and ALL-ORDS

Breville’s latest earnings reaffirmed the group’s global success across multiple geographies with product innovation and premiumisation driving growth.

-Coffee underpins strong results
-Managing the Trump tariff risks the second time round
-China and Middle East direct entry growth potential
-Beanz means recurring revenue streams

By Danielle Ecuyer

An Australian Consumer Success Story

Breville Group ((BRG)) is a true Australian consumer discretionary success story. The company was founded in 1932 and initially manufactured radios and mine detectors during World War II. By the 1960s, management had shifted to home appliances, and in 1974 the company became synonymous with the toasted sandwich maker. Further success came via the Kitchen Wizz food processor.

Since listing in 1999, the company has expanded internationally, making strategic acquisitions including Seattle-based food and tech company ChefSteps in 2019, coffee grinder Baratza in 2020, and the Italian espresso equipment company Lelit in 2022.

Breville’s products are sold globally in 70 countries under various brand names, including Sage in Europe. Breville’s product suite spans juicers and blenders, ovens, air fryers (the latest must-have gadget in the kitchen) and microwaves, to grills, presses and toasters, cookers, water and tea appliances, food preparation tools, air products, and specialty appliances.

The company is expected to generate almost $1.7bn in revenue in FY25 and has a market capitalisation of $5.2bn.

1H25 Earnings and Global Expansion

The 1H25 earnings report gives investors an insight into Breville’s corporate strategy to continue growing earnings. Analyst consensus swung to Breville’s 1H25 results coming in better than expected, albeit slightly, on the back of revenue growth of 10% and net profit growth of 18% over the previous corresponding period.

Impressively, global product revenue advanced 13% in constant currency terms, with Americas up 10.9%, APAC up 16.3%, and EMEA rising 15.4%.

Macquarie points to the strength in Breville’s coffee products as a key driver of global growth and details how North American sales growth was achieved despite store closures at Hudson Bay, Amazon issues with Mexico, and US revenue growth exceeding that of Canada and Mexico.

Management manoevres on tariffs and growth plans

Tackling the looming issue of potential US tariffs on China, Breville management noted this is not their first rodeo, so to speak, having navigated the 25% tariffs during President Trump’s first term.

Macquarie points to an increase in North American inventory, a rise of 16.8% to $443m, ahead of the China tariff implementation on March 7, which should alleviate pressure on 2H25 margins and cost of goods sold.

While manufacturing partners are moving 120V capacity to Southeast Asia and Mexico, the company is targeting a shift of around 90% of production out of China in relation to US sales by January 2026.

Acknowledging the strength of Breville’s earnings report, analysts were most upbeat on the targeted growth strategies for the company. If the humble toasted sandwich maker, which sold 400,000 units in the first year, was a mark of Breville’s success, then the broad-reaching “coffee” offering is the growth lever of the late 2020s.

Unanimously, analysts were upbeat on management’s announcement to expand directly into China and Middle East markets.

Citi explained Breville’s experience in South Korea offered an insightful backdrop to the Chinese market. Both economies are highly digitalised, with over 98% of Breville products in China sold online. The South Korea experience went from entering the market in June 2022 to exceeding NZ’s gross profit dollars in 2H24. Citi believes Breville has established a method that is successful for online transactions primarily.

Goldman Sachs estimates the China espresso coffee machine market at around US$322m, above the UK at US$237m and broadly in line with the US at US$317m. The analyst highlights the China market embraced the espresso coffee machine during covid and views Breville’s growth potential as exceeding Euromonitor’s estimated compound average growth rate of 5% over the next five years.

Macquarie explains expansion into new geographies post covid has advanced 36% for the company, suggesting, at least, management has a strong track record.

The Chinese market offers considerable revenue growth potential, with direct entry into the market in 2H25, though building a brand takes time. The direct launch into the Middle East took place on January 1. Breville estimates entry into these markets will increase direct market disposable income by 35%.

Competitive Positioning and New Growth Drivers

Addressing the issue of rising competition in the coffee segment, Breville management believes it has been able to capitalise on higher awareness of espresso machines from increased marketing spend by competitors. Although new entrants have gained market share, so has Breville.

Thinking laterally, it is not a leap of faith to suggest market share should be coming from alternative espresso coffee suppliers like coffee shops and chains such as Starbucks, with consumers becoming more cost-conscious in the face of elevated cost-of-living pressures.

The latest results were also boosted by new product launches, specifically the Oracle Jet coffee machine. Breville continues to invest in the business, with excess revenue above guidance going into advancing the company’s new products and solutions, Macquarie highlights.

At end of December 2024, the company had low gearing with $121.6m in cash and $152.4m in unused facilities. The balance sheet is well positioned to offer optionality in investment spending and expansion strategies.

Beanz a marketing ploy or much more?

To appreciate the extent of the depth of marketing skills at Breville, take a peek at the company’s Fast-Track Barista Pack YouTube campaign, “Become an at-home barista in 3 easy steps.” With a university marketing hat on, this YouTube ad cross-advertises and promotes its espresso machines with the newly launched Beanz.com offering.

With over 960k views since September 2024, it would seem people are at least engaging.

Beanz is also creating a frisson of excitement with analysts. Although at an early stage, the operation is an online portal to sell high-quality coffee beans sourced globally under a “dropship” model. This is where Beanz accepts the orders, which are then filled by suppliers, alleviating any inventory and thereby creating a capital-light model.

Simply put, Beanz is a global coffee bean order business seen as offering upside potential as a recurring SaaS-based revenue model. Competitors have similar platforms, but it is not a focus.

FY25 Outlook and Analyst Ratings

Turning to the current outlook for fiscal 2025, management offered a first with FY25 earnings before interest and tax guidance of 5%-10% growth, noted by analysts as conservative and reflective of (potentially) different US tariff outcomes. The top end is considered achievable in the absence of tariffs.

Morgans takes the view that Breville’s global expansion and combined enhancement and premiumisation of its product range have assisted in sustainable earnings growth over the last few years.

When weighing up the risk/reward for earnings growth against a more challenging global economic backdrop, the broker believes the current valuation does not offer a “compelling” entry for investors.

Post the 1H25 results, FNArena’s consensus target price for Breville rose almost 11% to $38.36, with Buy-equivalent ratings from Macquarie, Morgan Stanley, and Ord Minnett, all with the highest target prices of $41.10 and $40, respectively.

There are three Hold ratings. Non-daily monitored broker Goldman Sachs has a Buy rating and a $40.80 target, while Jarden holds a Hold-equivalent rating with a target of $32.80.

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