Briggs CEO Opening Remarks During Recent Earnings Call

October 18, 2012 -- Todd Teske - Chairman, President & CEO

 

“Good morning everyone, and thank you for joining us today. As you saw this morning's earnings announcement first quarter consolidated net sales were $309 million, a decrease of $88 million or 22% from the same quarter last year. The adjusted net loss for the first quarter excluding the $5 million of pre0tax restructuring charges was $13.2 million or $0.28 per share. This adjusted net loss for the quarter is $8 million higher than the first quarter net loss last year of $5.2 million or $0.10 per diluted shares.

The increased loss in the quarter was essentially related to lower overall sales volumes and lower production volumes as we have made the necessary adjustments to lower production levels in order to control inventories. These lower sales and production volumes were partially offset by approximately $10 million of cost savings resulting from our restructuring efforts over the last year.

As we anticipated coming into this fiscal year, sales of lawn and garden equipment continue to be significantly impacted by drought conditions in many areas of the United States. For the 12 months ended in August, industry data show shipments of walks and rides decreased 3% and 1% respectively, bringing us to the lowest level of activity in this industry since 1983. For the quarter, industry data indicates walk mowers were down 8.5%. For July and August, rides were down 21.1%. The September ride numbers have not yet been released.

Channel participants have continue to monitor inventory levels carefully by reducing re-orders for the late summer and early fall in order to limit inventory carried in the next season. While we continue to believe that inventory levels in the channel are elevated compared to one-year ago, channel participants, including OEMs, retailers and dealers generally have been cautious to not add to inventory levels causing issues for next spring.

Macro economic concerns in Europe impacting consumer spending continued to impact our business in the first quarter as well. International shipments to customers for the European lawn and garden market decreased over 60% compared to the same quarter last year. Inventory levels in Europe continue to be elevated for this time of the year and channel participants remain cautious of our consumer spending and inventory commitments heading into the next spring selling season.

Shipments of snow throwers were also lower in the quarter compared to last year’s dealers and retailers had high levels of inventory left over from last year’s exceptionally mild winter; while not significant enough to offset the market declines in lawn and garden, there are some bright spots in the quarter. Portable and standby generator sales benefited from Hurricane Isaac; although, the total impact of Isaac for generators was not as significant of an event compared to Hurricane Irene last year. However, the outages this year continue to highlight the need for dependable backup electrical power causing our standby generator sales to increase nearly 20% in the quarter.

We continue to make progress on improving our market share of commercial engines, which are used in commercial lawn cutting, construction equipment and utility markets. We also continue to execute on our restructuring actions in new product development in order to increase the efficiency of our manufacturing operations and to introduce higher margin products. The actions we announced last year continue to be on budget and on schedule and are delivering the cost savings that we anticipated of $30 million to $35 million for the full fiscal 2013 year.

Lastly, we’ve had the opportunity to host over 400 of our Simplicity, Snapper and Ferris dealers over the past several weeks at dealer open houses, where we have showcased over 40 new product introductions to be launched at the dealers next spring. The reactions of our dealers have been extremely positive and our teams are excited to get these new products launched in the coming months.”

…Looking forward to the remainder of the fiscal year, we are reaffirming our fiscal year 2013 projections for net income to be in the range of $60 million to $75 million or $1.25 to $1.55 per diluted share prior to the impact of any share repurchase activity and cost related or announced restructuring programs in pension curtailment.

We continue to be cautious with respect to the magnitude and pace of the economic recovery both here in the US and abroad, both the level of sustained consumer confidence and the ongoing impact if any of the drought conditions in the US. We are projecting net sales to be in a range of $1.95 billion to $2.15 billion which takes into consideration lower sales of approximately $100 million due to exiting the sale of lawn and garden products to national retailers and lower sales of snow throwers in the current year due to adequate inventory in the channel going into this fall.

On a more encouraging note, housing fundamentals continue to improve which is projected to have a positive impact on future [mode] of sales. Our fiscal year 2013 forecast contemplates the US lawn and garden market being higher by 4% to 6%, assuming the current drought conditions do not persist in the next season. We are currently in discussions with all of our key customers regarding product lineups for the 2013 spring and summer selling season, and we should have a better idea of placement at our fiscal 2013 second quarter conference call.

Consolidated operating margins are forecasted to be in the range of 5.1% to 5.6%. The improved operating margins include the benefit of over $30 million of savings as a result of our restructuring activities announced in fiscal year 2012. Offsetting these savings is higher pension expense in fiscal year 2013 of approximately $12 million caused by lower discount rates used to value the liabilities of the plant.

We expect the remaining restructuring savings and the incremental pension expense to be incurred ratably over the remainder of fiscal year 2013. While we do not provide guidance with respect to our quarters, I believe it is important to emphasize a few factors that will negatively impact our fiscal second quarter as compared to last year.

First, second quarter fiscal year 2012, included significant generators shipments due to power outages occurring during the period. We do not include such storm activity in our outlook. Second, we have announced that we will take additional days off in our McDonough plant, control inventories and the tool to plant for the new product introductions that we mentioned earlier. This will negatively impact our production rates and fixed cost absorption.

And third, many channel participants are being cautious with building inventories ahead of the season. Accordingly, we will be closely monitoring our productions to maintain reasonable levels of inventory. Therefore, we believe there will be some shift in orders and productions from the second quarter into the third quarter and from the third quarter into the fourth quarter.

Having said this; all of this factors are included in our outlook for the full fiscal year. From cash flow standpoints, cash flows are estimated to be higher in fiscal 2013 due a higher earnings and additional cash generator from net working capital reductions of approximately $80 million to a $100 million primarily related inventory reductions partially offset by required contributions of approximately $30 million to our pension plan.

Lastly, we anticipate that capital expenditures in fiscal 2013 will be in the range of $50 million to $60 million.”