MILWAUKEE, April 22, 2010 -- Briggs & Stratton today announced third quarter fiscal 2010 consolidated net income of $24.1 million or $0.48 per diluted share, that when adjusted for a litigation settlement of $30.6 million ($18.7 million after-tax) would result in an adjusted consolidated net income of $42.7 million or $0.85 per diluted share on consolidated net sales of $694.6 million. The litigation settlement relates to a class action lawsuit regarding horsepower labeling that was previously disclosed in a Current Report on Form 8-K filed on March 2, 2010.
The third quarter of fiscal 2009 had consolidated net income of $25.4 million or $0.51 per diluted share on consolidated net sales of $673.8 million. Consolidated net sales increased $20.8 million or 3% from the third quarter of the prior year. The increase is primarily attributable to higher sales volumes in the Engines Segment. Third quarter adjusted consolidated net income increased $17.3 million from net income in the same period a year ago. Engines Segment operating results were the primary driver of the improved adjusted net income.
For the first nine months of fiscal 2010, consolidated net income was $18.4 million or $0.36 per diluted share, that when adjusted for the litigation settlement of $30.6 million ($18.7 million after-tax), would result in an adjusted consolidated net income of $37.1 million or $0.73 per diluted share on consolidated net sales of $1.412 billion.
For the same period a year ago, consolidated net sales were $1.609 billion, and consolidated net income was $26.6 million or $0.53 per diluted share. The majority of the $197.0 million or 12% decrease in consolidated net sales was the result of lower sales volume in the Power Products Segment. The remainder of the net sales decrease reflects lower engine volume and lower prices. The nine-month adjusted consolidated net income increased by $10.5 million from net income in the same period a year ago. Engines Segment operating results were the primary driver of the improved adjusted net income.
Engines:
Third quarter net sales for fiscal 2010 were $498.9 million versus $480.2 million for the same period a year ago, an increase of $18.7 million or 4%. The increase in net sales was primarily the result of an engine unit shipment increase of 6% from the same period a year ago. Offsetting the volume improvement were lower average prices in effect for fiscal 2010. Shipments of engines increased in the third quarter for lawn and garden applications due to the shift of OEM production to the last half of the fiscal year from the fiscal second quarter reflecting the desire of the channel participants to control their working capital commitments at the end of the calendar year.
Net sales for the first nine months of fiscal 2010 were $983.6 million versus $1.078 billion in the prior year, a decrease of $94.5 million or 9%. Unit volume decreases of 7% through nine months were the result of lower engine demand for portable generators, soft engine shipments to European lawn and garden equipment manufacturers and minor market share losses in various engine categories. The majority of the remainder of the net sales decrease was due to lower pricing implemented for fiscal 2010.
Income from operations for the third quarter of fiscal 2010 was $43.8 million. Income from operations, after adjusting for the $30.6 million litigation settlement, was $74.4 million, a $27.8 million improvement from the $46.6 million reported for the same period in the prior year.
The $27.8 million improvement was primarily the result of lower manufacturing costs for materials, labor and fixed overhead. Improvement in the adjusted income from operations from sales and manufacturing volume increases was offset by the previously discussed lower prices.
Income from operations for the first nine months of fiscal 2010 was $56.0 million. Income from operations after adjusting for the litigation settlement was $86.6 million, a $23.5 million improvement from the $63.1 million reported for the same period a year ago. The $23.5 million improvement for the first nine months was the result of similar lower manufacturing costs as mentioned for the third fiscal quarter, offset by lower sales volume, production volume and pricing.
Power Products:
Fiscal 2010 third quarter net sales were $245.3 million versus $250.2 million for the same period a year ago, a decrease of $4.9 million. The net sales decrease was primarily the result of lower portable generator sales in the quarter, as the current year's quarter did not have hurricane replenishment shipments that were experienced in last year's third quarter. The portable generator sales decrease was partially offset by stronger pressure washer volume and a small improvement in shipments of lawn and garden equipment.
Net sales for the first nine months of fiscal 2010 were $565.5 million versus $697.7 million in the prior year, a $132.2 million decrease. Lower portable generator sales for this nine-month period accounted for almost all of the net sales decrease primarily due to the absence of any hurricane activity in fiscal 2010.
There was a loss from operations of $7.1 million in the third quarter of fiscal 2010, a $4.2 million greater loss than experienced in the prior year. The increase in the loss from operations resulted from lower plant utilization, primarily production of portable generators that decreased over 90% in the current third quarter compared to the same period a year ago.
The loss from operations for the first nine months of fiscal 2010 was $8.0 million, a small improvement from the $8.9 million operating loss generated for the same period a year ago. The improvement in the loss from operations for the quarter was the result of lower manufacturing costs, primarily related to lower commodity costs and planned cost saving initiatives. The improvements were offset by lower sales and production volumes primarily related to the significantly lower portable generator shipments and production in fiscal 2010.
General:
Other income for the third quarter and first nine months of fiscal 2010 was greater than the same periods last year primarily because of improved earnings in our joint ventures. Interest expense for the third quarter of fiscal 2010 was less than the prior year because of lower borrowings offset by a premium expense of $1.4 million to repurchase a portion of outstanding senior notes during the quarter. Interest expense for the first nine months of fiscal 2010 was also lower due to lower borrowings offset by a premium expense of $2.4 million to repurchase a portion of outstanding senior notes during fiscal 2010.
The effective tax rate was 27.1% for the third quarter and 22.3% for the first nine months of fiscal 2010 versus 31.4% and 23.4% for the same periods last year, respectively. The variation reflected between years was due to the required recognition of the tax effect of certain events as discrete items in the quarter in which they occurred rather than in the overall expected annual tax rate.
The 8.875% Senior Notes that are due in March 2011 have been classified as a Current Maturity on Long-term Debt in the consolidated balance sheet as of the end of fiscal March 2010. The company believes it will be able to replace these borrowings with new financing.
Outlook:
The company, after recognizing the litigation settlement in the third quarter, now projects that fiscal 2010 net income will be in the range of $24 to $31 million or $0.48 to $0.62 per diluted share. This current forecast range is the same as the forecast provided in January 2010, except it now incorporates the litigation settlement and the bottom end of the forecast has been increased.
Consolidated net sales are projected to be approximately 6% lower between years primarily due to the absence of hurricane related sales of portable generators and their related engines, the continued impact of year over year pricing changes and lower engine shipments to Europe for lawn and garden applications.
While the lawn and garden season has started, there remains uncertainty that the market growth built in to our projections should be changed at this time. Production levels for substantially all products are planned to be lower in fiscal 2010 to decrease our investment in working capital.
Operating income margins are projected to be in the range of 2.8% to 3.1% after recognition of the litigation expense but still in the previously disclosed 4% to 5% range if the litigation expense is removed. Interest expense and other income are forecasted for the full year at $26 million and $5 million, respectively. The effective tax rate for the full year is projected to be in a range of 27% to 30%.
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