MILWAUKEE,
April 26, 2012 -- Briggs and Stratton Corporation today announced financial
results for its third fiscal quarter and first nine months ended April 1, 2012.
HIGHLIGHTS:
·
Third
quarter fiscal 2012 consolidated net sales were $720.1 million or comparable to
third quarter fiscal 2011 consolidated net sales of $720.3 million.
·
Third
quarter fiscal 2012 adjusted consolidated net income of $49.5 million, or $0.99
per diluted share, excluding a $9.6 million after restructuring tax charge, or
$0.19 per diluted share, related to previously announced restructuring actions.
Including restructuring charges, net income of $39.9 million or $0.80 per
diluted share.
·
Products
Group to phase out lawn and garden product offerings to national mass
retailers. Engines Group to continue to support this channel with OEMs.
Products Group focus will be on dealers and regional retailers for lawn and
garden products.
·
Auburn
plant reconfigured through move of horizontal shaft engines off-shore.
·
Salaried
workforce intended to be reduced by 10% based on above actions and reduced
infrastructure needs given market levels.
·
Total
annualized pre-tax savings related to all announced restructuring actions are
estimated to exceed $40 million by fiscal 2014.
CONSOLIDATED RESULTS:
Consolidated
net sales for the third quarter of fiscal 2012 were $720.1 million, a decrease
of $0.2 million or comparable to the same period a year ago. Fiscal 2012 third
quarter consolidated net income was $39.9 million or $0.80 per diluted share.
The third quarter of fiscal 2011 consolidated net income was $51.5 million or
$1.02 per diluted share.
Included
in consolidated net income for the third quarter of fiscal 2012 were pre-tax charges
of $19.8 million ($9.6 million after tax or $0.19 per diluted share) associated
with the previously announced restructuring actions to close the Ostrava, Czech
Republic and Newbern, Tennessee manufacturing facilities and reconfigure
operations of the engine plant in Poplar Bluff, Missouri. After considering the
impact of the restructuring charges, adjusted consolidated net income for the
third quarter of fiscal 2012 was $49.5 million or $0.99 per diluted share,
which was lower by $2.0 million or $0.03 per diluted share compared to third
quarter fiscal 2011 consolidated net income of $51.5 million or $1.02 per
diluted share.
"The
early spring warm weather we experienced in the U.S. provided an early start to
the lawn and garden season domestically while sales were significantly lower in
Europe as consumers are cautiously spending due to concerns about the overall
economy" commented Todd J. Teske, Chairman, President and Chief Executive
Officer of Briggs and Stratton Corporation. "The early spring benefited
our Products Group more than our Engines Group as the favorable weather drove
retail sell-through. Equipment OEMs had inventory that was adequate to cover
the early season activity. The Engines Group did not see significant re-orders
from OEMs in the third fiscal quarter." Teske continued, "We are
pleased with the continued progress of our Products Group in improving the
operations and the financial performance as we execute our strategy of focusing
on higher margin products. While we are making progress, we have more work to
do as we deliver innovative new products and improve the efficiency of our
operations."
For
the first nine months of fiscal 2012, consolidated net sales were $1.6 billion,
an increase of $60.6 million or 4.0% when compared to the same period a year
ago. Consolidated net income for the first nine months of fiscal 2012 was $37.4
million or $0.74 per diluted share. Consolidated net income for the first nine
months of fiscal 2011 was $42.2 million or $0.84 per diluted share.
Included
in consolidated net income for the first nine months of fiscal 2012 were the
aforementioned pre-tax restructuring charges of $19.8 million ($9.6 million
after tax or $0.19 per diluted share). Included in consolidated net income for
the first nine months of fiscal 2011 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 restructuring
charges, organization changes, and debt redemption, adjusted consolidated net
income for the first nine months of fiscal 2012 was $47.0 million or $0.93 per
diluted share, which was higher by $0.3 million or less than $0.01 per diluted
share compared to the first nine months of fiscal 2011 adjusted consolidated
net income of $46.7 million or $0.93 per diluted share.
ENGINES
SEGMENT:
Engines
Segment fiscal 2012 third quarter net sales were $498.0 million, which was $5.8
million or 1.1% lower than the same period a year ago. This decrease in net
sales was primarily driven by lower shipment volumes of engines due to reduced
shipments to lawn and garden OEMs in the North American and European markets, and
unfavorable foreign exchange of $1.6 million, partially offset by improved
pricing.
The
Engines Segment adjusted gross profit for the third quarter of 2012 was $110.3
million, which was $14.1 million lower compared to the third quarter of fiscal
2011 gross profit of $124.4 million. Adjusted gross profit was lower than the
same period one year ago due to lower net sales, unfavorable absorption on
lower production volumes, unfavorable foreign exchange of $2.4 million, and
higher manufacturing spending. Higher manufacturing spending is attributed to
start-up costs of $1.9 million associated with launching our Phase III
emissions compliant engines. Increased pricing offset increased commodity
costs.
The
Engines Segment engineering, selling, general and administrative expenses were
$45.3 million in the third quarter of fiscal 2012, a decrease of $1.6 million
from the third quarter of fiscal 2011 due to a reduction in employee
compensation costs in fiscal 2012.
Engines
Segment net sales for the first nine months of fiscal 2012 were $987.5 million,
which was lower by $19.8 million or 2.0% compared to the same period a year
ago. This decrease in net sales was primarily driven by lower shipment volumes
of engines to OEMs for lawn and garden products in the North American and
European markets, and unfavorable foreign exchange of $3.4 million primarily
related to the Euro, partially offset by increased pricing, a favorable mix of
product shipped that reflected proportionally larger volumes of units used on
riding lawn mowers, snow throwers and portable and standby generators.
The
Engines Segment adjusted gross profit for the first nine months of fiscal 2012
was $196.5 million, which was $39.1 million lower compared to the third quarter
of fiscal 2011 gross profit of $235.6 million. Adjusted gross profit was lower
than the same period one year ago due to lower net sales, reduced absorption on
lower production volumes of $5.4 million, unfavorable foreign exchange of $7.2
million, and higher manufacturing spending associated with rising commodity
costs and start-up costs of $8.0 million associated with launching our Phase
III emissions compliant engines, partially offset by improved engine pricing.
The
Engines Segment engineering, selling, general and administrative expenses were
$134.7 million in the first nine months of fiscal 2012, a decrease of $8.6
million from the first nine months of fiscal 2011 primarily due to lower
employee compensation expense and the absence of $0.6 million of organization
change costs in the current fiscal year.
PRODUCTS
SEGMENT:
Products
Segment fiscal 2012 third quarter net sales were $281.3 million, an increase of
$13.7 million or 5.1% from the same period a year ago. The increase in net
sales was primarily due to increased sales of standby generators, pressure
washers and lawn and garden equipment. This increase was partially offset by
lower shipments of snow throwers and related service parts and portable
generators due to limited snowfall and a lack of ice storms in fiscal 2012.
The
Products Segment adjusted gross profit for the third quarter of 2012 was $37.1
million, which was $11.2 million higher compared to the third quarter of fiscal
2011 gross profit of $25.8 million. Adjusted gross profit was higher compared
to the prior year due to favorable mix of lawn and garden sales through the
dealer channel, improved pricing, production operational improvements of $1.8
million, and favorable absorption benefit on higher production levels,
partially offset by increased commodity costs.
The
Products Segment fiscal 2012 third quarter engineering, selling, general and
administrative expenses were $28.4 million, an increase of $4.3 million from
the third quarter of fiscal 2011. The increase is attributable to greater
selling expense to support investments in international growth, higher employee
compensation expense and $0.9 million of bad debt expense recorded in fiscal
2012 attributable to distributors in the European market.
Products
Segment net sales for the first nine months of fiscal 2012 were $732.0 million,
an increase of $110.5 million or 17.8% from the same period a year ago. The
increase in net sales was primarily due to increased sales of portable and
standby generators due to widespread power outages in the U.S. as a result of a
landed hurricane and subsequent snow storm on the United States East Coast
earlier in the fiscal year, increased shipments of snow equipment after channel
inventories were depleted from the prior selling season, improved pricing and
favorable foreign exchange of $5.1 million. There were no landed hurricanes in
fiscal 2011.
The
Products Segment adjusted gross profit for the first nine months of fiscal 2012
was $91.5 million, which was $36.3 million higher compared to the third quarter
of fiscal 2011 gross profit of $55.2 million. Adjusted gross profit was higher
compared to the same period one year ago due to the increase in net sales,
favorable mix of lawn and garden sales through the dealer channel, improved
pricing, favorable foreign exchange of $1.0 million, production operational
improvements of $13.7 million and manufacturing absorption benefits of $8.7
million, partially offset by increased commodity costs.
The
Products Segment engineering, selling, general and administrative expenses were
$80.0 million in the first nine months of fiscal 2012, an increase of $7.2
million from the first nine months of fiscal 2011 primarily due to greater
selling expense to support investments in international growth, unfavorable
foreign exchange of $0.8 million, higher marketing expense domestically and
increased salaries, partially offset by the absence of $3.0 million of
organization change costs in the current fiscal year.
CORPORATE
ITEMS:
Interest
expense for the third quarter of fiscal 2012 was $0.3 million higher compared
to the same period a year ago due to higher average interest rates, partially
offset by lower average borrowings. For the first nine months of fiscal 2012,
interest expense was $4.7 million lower compared to the first nine months of
fiscal 2011 due to $3.9 million of pre-tax charges associated with the
refinancing of Senior Notes during the second quarter of fiscal 2011, which did
not recur in the current fiscal year, as well as lower average outstanding
borrowings at lower interest rates.
The
effective tax rate for the third quarter and first nine months of fiscal 2012
was 20.4% and 13.4%, respectively, compared to 32.4% and 30.3% for the same
respective periods last year. The decrease in the effective tax rate for the
third quarter of fiscal 2012 compared to the third quarter of fiscal 2011 was
primarily driven by a net benefit of $3.3 million related to Ostrava plant
restructuring charges incurred during the recent quarter. The decrease in the
effective tax rate for the first nine months of fiscal 2012 compared to the
first nine months of fiscal 2011 was primarily due to the aforementioned
restructuring charges and a net benefit of $5.0 million due to the settlement
of U.S. audits and the expiration of a non-U.S. statute of limitation period during
fiscal 2012.
FINANCIAL
POSITION:
Net
debt at April 1, 2012 was $257.6 million (total debt of $274.0 million less
$16.4 million of cash), an increase of $17.4 million from the $240.2 million
(total debt of $283.0 million less $42.8 million of cash) at March 27, 2011.
Cash flows used by operating activities for the fiscal 2012 first nine months
were $166.7 million compared to $100.3 million in the first nine months of
fiscal 2011. Cash used in operating activities for the first nine months of
fiscal 2012 was primarily related to seasonal build of inventory levels and an
increase of accounts receivable during the period. Approximately $40 million of
the increase in accounts receivable is due to delayed funding under the
Company's new dealer inventory financing facility with GE Capital, Commercial
Distribution Finance. The delayed funding to the Company reduces the overall
cost of funds.
As
previously announced during the first quarter of fiscal 2012, the Board of
Directors of the Company authorized up to $50 million in funds for use in a
common share repurchase program with an expiration of June 30, 2013. The common
share repurchase program authorizes the purchase of shares of the Company's
common stock on the open market or in private transactions from time to time,
depending on market conditions and certain governing loan covenants. As of the
end of the third quarter of fiscal 2012, the Company repurchased 1,459,243
shares on the open market at a total cost of $22.7 million. There were no
shares repurchased in fiscal 2011.
RESTRUCTURING
ACTIONS:
The
Company also announced today several additional actions being taken to execute
the Company's strategy. Beginning in fiscal 2013, the Company will no longer
pursue placement of lawn and garden products at national mass retailers. The
Engines Segment will continue to support lawn and garden equipment OEMs who
provide lawn and garden equipment to these retailers. The Products Segment will
continue to focus on innovative, higher margin products that are sold through
our network of Simplicity, Snapper and Ferris dealers and regional retailers.
The Company will also continue to sell pressure washers and portable and
standby generators through the U.S. mass retail channel.
Briggs
and Stratton also announced that production of horizontal shaft engines
currently made in the Auburn, Alabama plant will move to the Company's existing
production facility in Chongqing, China or be sourced from third parties in
Southeast Asia. The Company previously moved smaller horizontal shaft engines
to the Chongqing, China plant in 2007 where these types of engines can be made
more competitively. The Company will continue to manufacture portable
generators in Auburn through calendar 2012 and is evaluating alternatives with
respect to manufacturing, assembling or sourcing cost effective portable
generators beyond 2012. The Auburn plant will continue to produce V-Twin
engines used in riding mowers and other outdoor power applications.
In
addition to focusing our Products business on the dealer channel and moving
certain production out of the Auburn facility, the Company also announced that
it intends to reduce its salaried headcount by approximately 10% during fiscal
2012. "While we appear poised for an improved lawn and garden market here
in the U.S., our longer term projections of the lawn and garden market in the
U.S. and in Europe do not return to the peaks that we saw in 2004 and 2005 for
the foreseeable future. We previously announced capacity reductions in our
manufacturing facilities and have announced today that certain portions of our
current business will not be strategic for us in the future." said Todd
Teske. "As a result, we are taking the difficult, but necessary actions,
to reduce our salaried support staff as well. While it is very difficult to
take these actions, it is necessary to reach our strategic goals and position
Briggs and Stratton for success in the future."
The
Company anticipates approximately 250 regular employees will be affected by the
Auburn, Alabama facility consolidation. The 10% reduction of the Company's
salaried workforce will affect approximately 210 employees globally.
In
January 2012, the Company announced plans to reduce manufacturing capacity
through closure of its Newbern, Tennessee and Ostrava, Czech Republic plants as
well as the reconfiguration of its plant in Poplar Bluff, Missouri. The total
pre-tax costs of those actions and the actions announced today are expected to
be $60 to $70 million, of which approximately $45 to $50 million of total
charges will be recognized in fiscal 2012. The Company anticipates annualized
pre-tax savings associated with these restructuring actions to be $30 to $35
million in fiscal 2013 and $40 to $45 million in fiscal 2014.
OUTLOOK:
For
fiscal 2012, the Company has included in its guidance the restructuring actions
announced today. Including $45 million to $50 million of pre-tax charges ($27
million to $30 million after taxes) related to the restructuring activities,
consolidated net income is expected to be in the range of $28 million to $41
million or $0.55 to $0.81 per diluted share prior to the potential impact of
any share repurchases under the Company's previously announced share repurchase
program. Excluding the restructuring actions, the Company is reaffirming that
consolidated adjusted net income is expected to be in the range of $58 million
to $68 million, or $1.15 to $1.35 per diluted share.
Consolidated
net sales for fiscal 2012 are projected to be higher than fiscal 2011 by
approximately 2% to 4% depending on the level of recovery of consumer sales of
lawn and garden equipment in the U.S. offset by significantly lower sales to
OEMs in Europe. As previously noted, lawn and garden sales in Europe have
slowed given overall economic conditions which could cause our estimates for
the year to trend toward the lower end of our guidance. However, favorable
weather conditions in the U.S. could positively impact sales should favorable
conditions continue throughout the season.
Engines
Segment sales are forecasted to be lower than fiscal 2011 on lower volume
primarily in Europe and improved pricing while the Products Segment sales are
forecasted higher primarily due to higher volumes of lawn and garden equipment,
pressure washers, and portable and standby generators.
Operating
income margins, excluding the restructuring charges, are projected to be in the
range of 4.5% to 4.8%, and interest expense and other income are forecasted to
be approximately $18 million and $6 million, respectively. The effective tax
rate for the full year, excluding the restructuring charges, is projected to be
in a range of 28% to 31%. Capital expenditures for the year are projected to be
approximately $50 million to $55 million.
