Briggs and Stratton Reports Results for the 3rd Quarter and 1st Nine Months of Fiscal 2013

MILWAUKEE -- April 19 -- Briggs and Stratton Corporation today announced financial results for its third fiscal quarter and first nine months ended March 31, 2013.

Highlights:

Third quarter fiscal 2013 consolidated net sales were $637.3 million, or 11.5% lower than the third quarter of fiscal 2012.

Fiscal 2013 third quarter consolidated net income excluding restructuring charges was $43.9 million, or $5.6 million lower than the adjusted net income of $49.5 million in the third quarter of fiscal 2012.

The Company's restructuring program started in fiscal 2012 achieved pre-tax savings of $28.8 million during the first nine months of fiscal 2013.

The Company recorded pre-tax restructuring charges of $6.6 million ($5.4 million after tax or $0.11 per diluted share) during the third quarter of fiscal 2013.

"We continue to see soft demand across international markets for engines and products due to macroeconomic concerns weighing on the minds of consumers and unfavorable weather conditions particularly in Australasia.  Brazil continues to be a bright spot for growing our international products business as our Branco acquisition is performing as anticipated," commented Todd Teske, Chairman, President and Chief Executive Officer of Briggs and Stratton Corporation.

"Here in the U.S., the spring lawn and garden season has been delayed by at least a few weeks due to a prolonged cold and wet spring in many parts of the country. This is significantly different from last year when we had an unusually early start to spring with very warm weather across the country.  The drought that impacted our industry so significantly last season appears to be improving east of the Mississippi River which is encouraging for the upcoming season. Despite a later start to spring compared to last year, we are optimistic that the U.S. market will be in line with our anticipated growth projections of 4 to 6%."

Consolidated Results:

Consolidated net sales for the third quarter of fiscal 2013 were $637.3 million, a decrease of $82.8 million or 11.5% from the third quarter of fiscal 2012. Fiscal 2013 third quarter consolidated net income including restructuring charges was $38.5 million, or $0.78 per diluted share. The third quarter of fiscal 2012 consolidated net income including restructuring charges was $39.9 million, or $0.80 per diluted share.

Sales of engines and products to international regions decreased by approximately $37 million compared to last years' third quarter. The majority of the remaining decrease in sales in the quarter was due to our decision to no longer sell lawn and garden products to large mass retailers in the U.S.  

Included in consolidated net income for the third quarter of fiscal 2013 were pre-tax charges of $6.6 million ($5.4 million after tax or $0.11 per diluted share) related to previously announced restructuring actions. 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) also related to the restructuring actions. After considering the impact of the restructuring charges, the adjusted consolidated net income for the third quarter of fiscal 2013 was $43.9 million or $0.89 per diluted share, which was $5.6 million or $0.10 per diluted share lower compared to the third quarter fiscal 2012 adjusted consolidated net income of $49.5 million or $0.99 per diluted share.

For the first nine months of fiscal 2013, consolidated net sales were $1.385 billion, a decrease of $180.0 million or 11.5% when compared to the same period a year ago. Consolidated net income for the first nine months of fiscal 2013 was $21.4 million or $0.44 per diluted share. Consolidated net income for the first nine months of fiscal 2012 was $37.4 million or $0.74 per diluted share.

Included in consolidated net income for the first nine months of fiscal 2013 were pre-tax charges of $18.4 million ($13.0 million after tax or $0.27 per diluted share) related to the aforementioned restructuring actions. Included in consolidated net income for the first nine months of fiscal 2012 were pre-tax charges of $19.8 million ($9.6 million after tax or $0.19 per diluted share) also related to the restructuring actions.

After considering the impact of the restructuring charges, adjusted consolidated net income for the first nine months of fiscal 2013 was $34.4 million or $0.71 per diluted share, which was a decrease of $12.6 million or $0.22 per diluted share compared to the first nine months of fiscal 2012 adjusted consolidated net income of $47.0 million or $0.93 per diluted share.

Engines Segment

Engines Segment fiscal 2013 third quarter net sales were $451.9 million, which was $46.1 million or 9.3% lower than the third quarter of fiscal 2012. This decrease in net sales was driven by reduced shipments of engines used primarily on walk and ride equipment in European and North American markets as OEM customers manage inventory levels due to a later start to warmer spring weather. Net sales were also lower due to unfavorable foreign exchange of $5.4 million primarily due to a decrease in the value of the Euro in fiscal 2013. These decreases in net sales were partially offset by the timing of generator engine replenishment sales in the U.S. following the recent hurricane season.

The Engines Segment adjusted gross profit percentage for the third quarter of 2013 was 23.5%, which was 1.4% higher compared to the third quarter of fiscal 2012. The adjusted gross profit percentage was favorably impacted by 3.6% due to lower manufacturing costs, partially offset by 1.2% due to unfavorable foreign exchange and by 1% due to unfavorable absorption of fixed manufacturing costs as a result of a 4% reduction in engines built. The lower manufacturing costs resulted from $3.4 million of cost savings as a result of restructuring actions initiated in fiscal 2012, lower material costs, and start-up costs incurred in fiscal 2012 associated with launching our phase III emissions compliant engines.

The Engines Segment engineering, selling, general and administrative expenses were $43.9 million in the third quarter of fiscal 2013, a decrease of $1.3 million from the third quarter of fiscal 2012 primarily due to lower compensation costs of $2.5 million as a result of the previously announced global salaried employee reduction and reduced selling expenses, partially offset by $0.6 million of increased pension expense compared to the same period last year. 

Engines Segment net sales for the first nine months of fiscal 2013 were $890.6 million, which was $96.9 million or 9.8% lower than the same period a year ago. This decrease in net sales was primarily driven by reduced shipments of engines used on snow thrower equipment in the North American market as well as lower sales to OEM customers for the European and Australasian markets. European markets were off considerably given macroeconomic issues and unfavorable weather conditions.  Australasia markets were off due to a significant lack of rainfall in highly populated areas. In addition, sales were lower in fiscal 2013 due to an unfavorable mix of engines sold that reflected proportionately lower sales of large engines, and unfavorable foreign exchange of $9.7 million primarily related to the Euro.

The Engines Segment adjusted gross profit percentage for the first nine months of 2013 was 21.3%, which was 1.4% higher compared to the first nine months of fiscal 2012. The adjusted gross profit percentage was favorably impacted by 3.4% due to lower manufacturing costs, partially offset by 1% due to unfavorable foreign exchange and by 1% due to unfavorable absorption of fixed manufacturing costs as a result of a 5% reduction in engines built. The lower manufacturing costs resulted from $8.1 million of cost savings as a result of restructuring actions initiated in fiscal 2012, lower material costs, and start-up costs incurred in fiscal 2012 associated with launching our phase III emissions compliant engines.

The Engines Segment engineering, selling, general and administrative expenses were $130.0 million in the first nine months of fiscal 2013, or $4.7 million lower compared to the first nine months of fiscal 2012 primarily due to lower compensation costs of $7.4 million as a result of the previously announced reduction of 10% of the global salaried workforce and reduced selling costs in response to the softness in the global markets, partially offset by $2.7 million of increased pension expense compared to the same period last year.

Products Segment

Products Segment fiscal 2013 third quarter net sales were $231.5 million, a decrease of $49.7 million or 17.7% from the third quarter of fiscal 2012. The decrease in net sales was primarily related to our decision to exit the sale of lawn and garden equipment through national mass retailers.  In addition, sales of lawn and garden equipment and pressure washers decreased in North America from last year as a result of a later start to the spring selling season and decreased in international markets due to continued drought conditions in parts of Australasia. The net sales decrease was partially offset by net sales from the acquisition of Branco that were in line with expectations.  

The Products Segment adjusted gross profit percentage for the third quarter of 2013 was 12.0%, which was 1.2% lower than the adjusted gross profit percentage for the third quarter of fiscal 2012. The adjusted gross profit percentage decreased 3.4% due to unfavorable absorption associated with a 35% decrease in production in order to control inventory levels. This decrease was partially offset by a benefit of 1.7% due to cost savings of $4.0 million as a result of restructuring actions initiated in fiscal 2012.                                                                                                   

The Products Segment fiscal 2013 third quarter engineering, selling, general and administrative expenses were $26.8 million, a decrease of $1.7 million from the third quarter of fiscal 2012. The decrease was attributable to lower compensation costs of $0.7 million as a result of the previously announced reduction of 10% of the global salaried workforce, $0.7 million of lower bad debt expense, and reduced selling costs in response to the softness in the global markets.

Products Segment net sales for the first nine months of fiscal 2013 were $602.3 million, a decrease of $129.6 million or 17.7% from the same period a year ago. The decrease in net sales was primarily due to lower sales volumes of snow equipment due to significantly below average snowfall in North America and reduced sales of lawn and garden equipment resulting from prolonged drought conditions in the United States and Australasia. In addition, the decrease in net sales was impacted by our decision to exit the sale of lawn and garden equipment through national mass retailers. The decrease in net sales was partially offset by higher shipments of portable and standby generators in the North American market.

The Products Segment adjusted gross profit percentage for the first nine months of 2013 was 11.9%, which was 0.6% lower compared to the adjusted gross profit percentage of the first nine months of fiscal 2012. The adjusted gross profit percentage decreased 2.6% due to unfavorable absorption associated with a 43% decrease in production volume in order to control inventory levels.

This was partially offset by a 1.8% benefit due to cost savings of $11.1 million as a result of restructuring actions. We reduced production volumes in the first nine months of fiscal 2013 in order to manage inventory levels in response to a decline in near-term market demand. The McDonough, Georgia manufacturing facility was temporarily idled for four weeks in the second quarter of fiscal 2013 to reduce inventory levels in response to a decline in market demand for snow and lawn and garden products and to re-tool the plant for new products to be launched for the spring season.

The Products Segment engineering, selling, general and administrative expenses were $75.6 million in the first nine months of fiscal 2013, a decrease of $4.4 million from the first nine months of fiscal 2012. The decrease was attributable to lower compensation costs of $2.2 million as a result of the previously announced global salaried employee reduction and reduced selling expenses in response to the softness in the global markets.

Corporate Items:

Interest expense was lower compared to the prior year periods by $0.1 million for both the third quarter and first nine months of fiscal 2013.

The effective tax rate for the third quarter and the first nine months of fiscal 2013 was 27.6% and 27.5% respectively, compared to 20.4% and 13.4% for the same respective periods last year. The tax rate for the third quarter of fiscal 2013 is lower than the 35% statutory U.S. rate due to the reenactment of the U.S. federal research and development and other credits in the amount of $1.0 million and foreign tax credits in the amount of $0.5 million which were partially offset by additional taxes of $1.0 million due to non-deductible expenses related to the Ostrava, Czech Republic plant closing. 

The effective tax rate for the first nine months of fiscal 2013 was lower than the 35% statutory U.S. rate due to the aforementioned credits and non-deductible expenses and non-deductible acquisition costs increasing the tax expense by $0.5 million.  The effective rate for the third quarter of fiscal 2012 was lower as a result of recording a net benefit of $3.3 million related to Ostrava plant restructuring charges incurred during that quarter. The effective rate for the first nine months of fiscal 2012 was impacted by the aforementioned restructuring charges and a net benefit of $5.0 million related 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 March 31, 2013 was $239.9 million (total debt of $262.5 million less $22.6 million of cash), or $17.7 million lower from the $257.6 million (total debt of $274.0 million less $16.4 million of cash) at April 1, 2012. Cash flows used in operating activities for the first nine months of fiscal 2013 were $73.8 million compared to $166.7 million in the first nine months of fiscal 2012. The improvement in operating cash flows was primarily related to lower working capital needs in the first nine months of fiscal 2013 associated with less of an increase in accounts receivable and inventory compared to the same period last year.

Restructuring:

The Company's execution of its previously announced restructuring actions remains largely on schedule. In the third quarter of fiscal 2013, the Company entered into an agreement to sell the Ostrava, Czech Republic manufacturing facility. The transaction closed early in the fourth fiscal quarter. The Company continues to make progress towards finalizing its exit from the Newbern, Tennessee manufacturing facility and the move of horizontal engine manufacturing from its Auburn, Alabama plant to China. As noted previously, pre-tax restructuring costs for the third quarter and first nine months of fiscal 2013 were $6.6 million and $18.4 million, respectively. The total estimated pre-tax expense related to restructuring actions in fiscal 2013 is expected to be $20 million to $22 million. In addition, the Company continues to anticipate pre-tax savings associated with restructuring actions of $32 million to $37 million in fiscal 2013 and $40 million to $45 million in fiscal 2014 as compared to 2012.

Share Repurchase Program:

On August 10, 2011, 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. On August 8, 2012 the Board of Directors of the Company authorized up to an additional $50 million in funds associated with the common share repurchase program and an extension of the expiration date to June 30, 2014. 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. During the first nine months of fiscal 2013, the Company repurchased approximately 1.2 million shares on the open market at an average price of $18.96 per share.

Revised Outlook:

Due to continued weakness in consumer spending for outdoor power equipment in our international markets and a significantly reduced market for snow thrower products in the U.S. and Europe, we are revising our fiscal 2013 net income projections to be in a range of $56 million to $65 million or $1.16 to $1.33 per diluted share. These net income projections include the results of the Branco acquisition closed on December 7, 2012 and are prior to the impact of any additional share repurchases and costs related to our announced restructuring programs.

The market growth estimates of 4% to 6% for the U.S. lawn and garden market remain unchanged; however, the lower end of the net income projections contemplate a later start to the spring lawn and garden season in the U.S. which could potentially have the impact of extending the season past fiscal 2013 at the end of June and into the first  quarter of fiscal 2014.

The Company previously indicated that it would exit sales of lawn and garden products to national mass retailers. The estimated impact of exiting this business in fiscal 2013 is approximately $100 million of reduced sales. Although sales in the first nine months of fiscal 2013 were favorably impacted by sales of generators in response to power outages during Hurricanes Isaac and Sandy, drought conditions and a lack of meaningful snowfall in a significant portion of the U.S. prior to February and a reduction in sales demand from many of our international markets have continued to negatively impact shipment volumes, offsetting the storm benefit.

Our fiscal 2013 consolidated net sales are projected to be in a range of $1.95 billion to $2.0 billion.  Operating income margins are expected to improve over fiscal 2012 and be in a range of 4.8% to 5.3% and reflect the positive impacts of the restructuring programs announced during fiscal 2012. Interest expense and other income are estimated to be approximately $18 million and $7 million, respectively. The effective tax rate is projected to be in a range of 30% to 33%, and capital expenditures are projected to be approximately $45 million to $50 million.  

About Briggs and Stratton Corporation:

Briggs and Stratton Corporation, headquartered in Milwaukee, Wisconsin, is the world's largest producer of gasoline engines for outdoor power equipment. Its wholly owned subsidiaries include North America's number one manufacturer of portable generators and pressure washers, and it is a leading designer, manufacturer and marketer of lawn and garden and turf care through its Simplicity®, Snapper®, Ferris®, Murray®, Branco® and Victa® brands. Briggs and Stratton products are designed, manufactured, marketed and serviced in over 100 countries on six continents.