MILWAUKEE, Jan. 27 -- Briggs & Stratton Corporation today announced financial results for its second fiscal quarter and first six months ended December 26, 2010.
Highlights:
- Second quarter fiscal 2011 consolidated net sales of $450.3 million increased $57.3 million or 14.6% from the second quarter of fiscal 2010. For the first six months of fiscal 2011, consolidated sales were $784.4 million, an increase of $66.8 million or 9.3% from the same period of fiscal 2010.
- Our second quarter fiscal 2011 consolidated net loss of $1.3 million, or $0.03 per diluted share, included a $2.2 million after tax charge, or $0.04 per diluted share, related to previously announced organization changes and $2.4 million after tax costs, or $0.05 per diluted share, associated with the refinancing of our Senior Notes.
- In December 2010, we issued $225 million aggregate principal amount of 6.875% Senior Notes due in 2020. Net proceeds were primarily used to redeem the remaining outstanding principal of the 8.875% Senior Notes that were due in 2011.
"Our second quarter results yielded sales growth for both our Engine and Power Products Segments," commented Todd J. Teske, Chairman, President & Chief Executive Officer of Briggs & Stratton. "While we continue to work towards our strategic plans, we are pleased with the progress we are seeing throughout the company despite continuingly challenging economic times. Our organization changes announced earlier this fiscal year demonstrate our commitment to improving the profitability of our Power Products business while making investments for long-term success. Further, the recent refinancing of our Senior Notes extends our maturity profile and enhances our liquidity during a favorable interest rate environment."
Consolidated Results:
Fiscal 2011 second quarter consolidated net sales were $450.3 million and the consolidated net loss was $1.3 million or $0.03 per diluted share. The second quarter of fiscal 2010 had consolidated net sales of $393.0 million and consolidated net income of $3.0 million or $0.06 per diluted share. The $57.3 million consolidated net sales increase was due primarily to higher international engine shipments as well as improved lawn and garden and snow thrower product sales volumes within our Power Products segment, offset by lower sales of portable generator products.
Included in the net loss for the fiscal 2011 second quarter was a $3.5 million pre-tax charge ($2.2 million after tax or $0.04 per diluted share) related to previously announced organization changes and $3.9 million of additional pre-tax costs ($2.4 million after tax or $0.05 per diluted share) associated with the redemption premium of the 8.875% Senior Notes and the write off of the related deferred financing costs. After considering the impact of items related to the organization changes and the debt redemption, adjusted net income for the fiscal 2011 second quarter was$3.3 million or $0.06 per diluted share, which was higher by $0.3 million or less than $0.01 per diluted share compared to the prior year second quarter net income of $3.0 million or $0.06 per diluted share. This increase was primarily due to higher shipment volumes and slightly increased engine pricing, partially offset by higher manufacturing spending, lower absorption on decreased production of portable generators and higher salaries and benefits expenses.
For the first six months of fiscal 2011, consolidated net sales were $784.4 million and the consolidated net loss was $9.4 million or $0.19 per diluted share. The first six months of fiscal 2010 had consolidated net sales of $717.7 million and a consolidated net loss of $5.7 million, or $0.12 per diluted share. The $66.8 million consolidated net sales increase was due primarily to higher international engine shipments as well as improved lawn and garden and snow thrower product sales volumes within our Power Products segment, offset by lower sales of pressure washers and portable generator products.
After considering the impact of the second quarter fiscal 2011 charges related to the organization changes and the debt redemption, the adjusted net loss for the first six months of fiscal 2011 was $4.8 million or $0.10 per diluted share, which was an improvement of $0.9 million or $0.02 per diluted share as compared to the prior year net loss of $5.7 million or $0.12 per diluted share. This improvement was primarily due to increased shipment volumes, improved engine plant productivity on higher production volumes and slightly increased engine pricing, partially offset by higher manufacturing spending, lower absorption primarily related to the decreased production of portable generators and pressure washers, and increased costs stemming from higher salaries and benefits expenses. The higher salaries and benefits expenses include an $8.4 million increase in pension benefits expense as well as a net increase in salaries and 401(k) company match benefits of $5.1 million, which were temporarily reduced in the first six months of fiscal 2010 and have since been fully restored.
Engines Segment:
Fiscal 2011 second quarter net sales were $297.8 million, which was $37.8 million or 14.5% higher than the prior year period. This increase from the same quarter last year is primarily due to higher international engine unit shipments to European and Asian OEMs, partially offset by slightly lower sales domestically as U.S. OEMs and retailers continue to focus on lean inventory levels prior to the spring selling season.
Net sales for the first six months of fiscal 2011 were $503.4 million, which was $37.4 million or 8.0% higher than the prior year period. This increase from the same period last year is primarily due to higher international engine unit shipments to European and Asian OEMs, partially offset by lower engine sales domestically and a reduction of intercompany sales of engines to our Power Products segment due to lower sales and production of pressure washers and portable generators.
The fiscal 2011 second quarter income from operations was $20.2 million, which included a $0.6 million pre-tax charge related to the previously discussed organization changes. After considering the impact of the organization changes, adjusted income from operations was $20.7 million, or $3.8 million higher than the income from operations of $16.9 million in the second quarter of fiscal 2010. Adjusted income from operations was higher due to increased shipment volumes, offset by higher materials costs, increased salaries and benefits including a $4.0 million increase in pension benefits expense and higher selling expenses driven by increased sales internationally.
Income from operations for the first six months of fiscal 2011 was $14.8 million. After considering the impact of the previously discussed organization changes, adjusted income from operations was $15.4 million, or $3.3 million higher than the income from operations of $12.1 million for the same period one year ago. This improvement in adjusted income from operations was due to increased shipment volumes and improvements to production efficiency, partially offset by higher salaries and benefits and higher selling expenses driven by increased sales internationally. The increase in salaries and benefits includes a $8.4 million increase in pension benefits expense and $3.6 million attributed to temporary reductions in salaries and 401(k) match implemented in the first half of fiscal 2010.
Power Products Segment:
Fiscal 2011 second quarter net sales were $186.4 million, which was $21.5 million or 13.0% greater than the prior year period. This improvement was due primarily to increased unit shipment volumes of snow throwers, ZTRs and pressure washers, offset by reduced shipment volumes of portable generators as a result of lower consumer demand and adequate channel inventories.
Net sales for the first six months of fiscal 2011 were $353.9 million, which was $23.2 million or 7.0% greater than the prior year period. This improvement was due primarily to increased unit production volumes of snow throwers and ZTRs, offset by reduced shipment volumes of pressure washers and portable generators as a result of lower consumer demand and retailers closely managing inventories in these categories.
The fiscal 2011 second quarter loss from operations was $14.1 million, which included a $3.0 million pre-tax charge related to the previously discussed organization changes. After considering the impact of the organization changes, the adjusted loss from operations was $11.1 million, or $7.3 million higher than the loss from operations of $3.9 million in the second quarter of fiscal 2010. The increased adjusted loss from operations between years was due to higher manufacturing spending and lower absorption primarily related to the decreased production of portable generators and pressure washers partially offset by increased shipment volumes of snow throwers and ZTRs. The higher manufacturing spending is attributed to higher material costs, manufacturing inefficiencies in launching new products, increased warranty expense, and increased freight expense.
The loss from operations for the first six months of fiscal 2011 was $19.3 million, which included the $3.0 million pre-tax charge in the second quarter of fiscal 2011 related to the previously discussed organization changes. After considering the impact of the organization changes, the adjusted loss from operations was $16.3 million, or $14.9 million higher than the loss from operations of $1.4 million for the same period one year ago. This decline in income from operations between years resulted from higher manufacturing spending, lower absorption primarily related to the decreased production of portable generators and pressure washers, as well as increased expenses related to salaries and benefits. The increase in manufacturing spending relates to transition costs from the closure of our Jefferson manufacturing facility, higher material costs, manufacturing inefficiencies in launching new products, increased warranty expense, and increased freight expense. The increase in salaries and benefits includes $1.4 million attributable to temporary reductions in salaries and the 401(k) match implemented in the first half of fiscal 2010.
Corporate Items:
In December 2010, the company issued $225 million aggregate principal amount of 6.875% Senior Notes due December 2020. Net proceeds were primarily used to redeem the remaining outstanding principal of the 8.875% Senior Notes due March 2011.
Interest expense was higher for the second quarter and the first six months of fiscal 2011 due to a $3.9 million redemption premium on the 8.875% Senior Notes and the write off of related deferred financing costs, offset by lower average outstanding borrowings.
The second quarter and first six months effective tax rate benefit for fiscal 2011 was65.3% and 40.7%, respectively, versus the 29.1% effective tax rate and 39.2% effective tax rate benefit in the same respective periods last year. The increase in the second quarter of fiscal 2011 effective tax rate benefit over the prior year was the result of recognizing the benefit of the research & development credit, which was extended by federal tax legislature enacted on December 17, 2010.
Financial Position:
Net debt at December 26, 2010 was $251.5 million (total debt of $283.0 million less $31.5 million of cash), an improvement of $62.9 million from December 27, 2009. Cash flows used by operating activities for the first six months of fiscal 2011 were $128.7 million, or $103.4 million higher compared to $25.3 million in the first six months of fiscal 2010. The increase in cash used for operating activities is primarily due to working capital requirements to replenish inventory from lower levels at the end of fiscal 2010 and due to timing of payments associated with accounts payable and accrued liabilities.
Outlook:
The company maintains its revised guidance that fiscal 2011 net income on a GAAP basis will be in the range of $57 to $68 million or $1.13 to $1.35 per diluted share. Consolidated net sales are projected to be approximately 2% to 4% higher than in fiscal 2010.
Engines Segment sales are forecasted higher on modest volume and pricing improvements while the Power Products Segment sales are forecasted higher primarily due to higher expected volumes of lawn and garden equipment. Demand for portable generators and the related engines due to landed hurricane activity have not been included in our fiscal 2011 sales forecast.
Operating income margins for fiscal 2011 are projected to be in the range of 5.0% to 6.0%, and interest expense and other income are forecasted to be in the range of $23 million to $24 million and $4 million to $5 million, respectively. The effective tax rate for the full year is projected to be in a range of 32% to 35%.
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