MILWAUKEE,
April 24, 2014 -- Briggs and Stratton Corporation today announced financial
results for its third fiscal quarter ended March 30, 2014.
Highlights:
- Third quarter fiscal 2014 consolidated net sales were $628.4 million, a decrease of $8.9 million or 1.4% from the prior year.
- Third quarter 2014 consolidated adjusted net income excluding restructuring actions was $38.7 million, or $5.2 million lower than the adjusted net income of $43.9 million in the third quarter of fiscal 2013.
- Reduced shipments of generators led to a decrease in net sales and diluted earnings per share by an estimated $25 million and $0.06, respectively, in the third fiscal quarter compared to last year which benefitted from replenishment following Hurricane Sandy.
- Third quarter cash flows from operations improved over $30 million from the prior year; last twelve month cash flows from operations total $221 million.
- Fiscal 2014 third quarter net debt decreased $122 million from the third quarter of fiscal 2013.
"During
our third quarter, we saw increases in shipments of engines for lawn and garden
equipment in the U.S. despite below average temperatures and a slow start to
the spring retail season this year," commented Todd J. Teske, Chairman,
President and Chief Executive Officer of Briggs and Stratton Corporation.
"Our U.S. shipments of large engines increased in excess of 10% in the
quarter reflecting our gains in retail placement. Higher U.S. lawn and garden
engine shipments were offset by reduced engines shipped for generators compared
with last year when we were replenishing generator inventories following
Hurricane Sandy," continued Teske. "Shipments of lawn and garden
products in the quarter decreased in line with industry trends given the slow
start to the spring season."
"We
are pleased with the responses so far to our new product introductions this
year. Orders for our innovative new engine technologies, including our Quiet
Power Technology™, 810CC Commercial Series™ engine and our Mow-n-Stow™ engine
have exceeded our pre-season expectations and we are looking forward to
additional consumer response this summer. Also, our Powerflow + Technology™
introduction is showing early success."
Teske
further stated, "Cash flows from operations continue to be strong due to
continued operational focus on reducing our investment in working capital. Last
twelve months cash flows from operations are in excess of $220 million and
reflect lower inventories of $68 million despite holding higher inventories of
portable generators in the current year."
"We
believe that the colder than normal temperatures have delayed retail sales of
equipment by approximately 3-4 weeks and perhaps longer as we have not yet seen
the weather break across the United States. Weather in Europe has been
favorable to date. Moving forward this spring, we continue to focus on
successfully launching our new and innovative products, closely managing
working capital, optimizing the SKUs in our product portfolio and improving our
operations to improve our overall margins in both the engines and products
businesses," Teske stated.
Consolidated
Results:
Consolidated
net sales for the third quarter of fiscal 2014 were $628.4 million, a decrease
of $8.9 million or 1.4% from the third quarter of fiscal 2013, due to lower
sales of generators and the engines that power them. The quarterly impact of
lower replenishment following fewer weather related events creating demand for
generators and the related engines was an estimated sales decrease of $25
million.
This
decrease was partially offset by higher sales of engines used on U.S. lawn and
garden equipment and increased snow thrower sales due to higher snowfall
amounts in North America this winter. The fiscal 2014 third quarter
consolidated net income, which includes restructuring actions, was $39.2
million or $0.82 per diluted share. The third quarter of fiscal 2013
consolidated net income, which includes restructuring charges, was $38.5
million or $0.78 per diluted share.
The
estimated impact of the reduced storm replenishment generator and related
engine sales in the quarter was $0.06 per diluted share compared with last
year's third fiscal quarter.
Consolidated
net sales for the first nine months of fiscal 2014 were $1.36 billion, a
decrease of $23.0 million or 1.7% from the first nine months of fiscal 2013,
due to lower sales of generators and the engines that power them. The impact of fewer weather related events
creating demand for generators and the related engines was an estimated sales
decrease of $90 million.
This
decrease was partially offset by higher sales of engines used on U.S. lawn and
garden equipment, increased sales of pressure washers and sales from Branco,
which was acquired mid-year in fiscal 2013. The fiscal 2014 nine months
consolidated net income, which includes restructuring actions, was $20.5
million or $0.43 per diluted share. The first nine months of fiscal 2013
consolidated net income, which includes restructuring charges, was $21.4
million or $0.44 per diluted share.
The
estimated impact of the reduced storm generator and related engine sales in the
first nine months of fiscal 2014 was $0.20 per diluted share compared with last
year's first nine months which included the benefit of Hurricanes Isaac and
Sandy.
Non-GAAP
Financial Measures
This
release refers to non-GAAP financial measures including "adjusted gross
profit", "adjusted income from operations", and "adjusted
net income". Refer to the
accompanying financial schedules for supplemental financial data and
corresponding reconciliations of these non-GAAP financial measures to certain
GAAP financial measures.
Engines
Segment:
Engines
segment net sales of $452 million in the third fiscal quarter were essentially
unchanged from the prior year. Total engine volumes shipped in the quarter were
approximately the same between years at 3.2 million units. Net sales increased
on higher sales of engines used on lawn and garden equipment for the North
American market, partially offset by lower sales of engines used in generators
and for products in Latin America and Australia. New innovations, including
Quiet Power Technology™ ("QPT™"), Mow-and-Stow™ and Ready Start® for
Ride product launches, have been introduced to the market for the spring
selling season.
Engines
segment adjusted income from operations in the third fiscal quarter was $59.6
million, a decrease of $2.9 million from the prior year. Engines adjusted gross
profit margins improved in total by approximately 20 basis points due to
improved product sales mix of larger engines and an absorption benefit of
approximately 30 basis points on 4% higher production in the quarter compared
to last year.
Partially
offsetting these improvements were higher manufacturing and shipping costs in
the quarter. Engineering, selling, general and administrative increased $3.7
million due to increased compensation expense and higher sales and marketing
expenses in our international regions.
Products
Segment
Products
segment net sales of $205.2 million in the third fiscal quarter decreased by
$26.4 million or 11% from the prior year. This decrease was due to lower sales
of generators as a result of fewer weather related events during fiscal 2014,
decreased sales of lawn and garden equipment due to exiting sales of lawn and
garden equipment to mass retailers and a delay in the selling season, and
unfavorable foreign exchange related to the devaluation of the Australian
Dollar and Brazilian Real.
Partially
offsetting these decreases were higher net sales of snow throwers and related
service parts due to higher snowfall amounts in North America this winter. New
innovations, including Powerflow + Technology™ for pressure washers, have been
introduced to the market for the spring selling season and are contributing to
higher pressure washer sales compared with last year at improved margins.
Products
segment adjusted loss from operations in the third fiscal quarter was $4.9
million, a change of $6.0 million from the prior year adjusted income from
operations. Products adjusted gross profit margins decreased in total by 110
basis points due to an unfavorable foreign exchange impact of approximately 130
basis points and a 6.5% reduction in manufacturing throughput that led to an
unfavorable absorption impact of approximately 70 basis points.
Partially
offsetting this reduction were improvements of 50 basis points due to increased
manufacturing efficiencies, including incremental restructuring savings and
improved product sales mix through the U.S. dealer channel. Engineering,
selling, general and administrative increased $0.5 million due to increased
compensation expense and higher advertising related to new product launches.
Corporate
Items:
Interest
expense for the third quarter and first nine months of fiscal 2014 was
comparable to the same periods a year ago.
The
effective tax rate for the third quarter of fiscal 2014 was 26.1% compared to
27.6% for the same respective period of fiscal 2013. The tax rate for the third quarter of fiscal
2014 included a taxpayer election which provided the Company a $2.9 million tax
benefit that was previously unavailable, as well as a benefit of $0.7 million
from income related to foreign operations subject to different statutory tax rates.
The
tax rate for the third quarter of fiscal 2013 included benefits for the
reenactment of the U.S. federal research and development and other credits in
the amount of $1.0 million, foreign tax credits in the amount of $0.5 million,
and $1.7 million from income related to foreign operations subject to different
statutory rates.
Financial
Position:
Net
debt at March 30, 2014 was $117.8 million (total debt of $225.0 million less
$107.2 million of cash), or $122.1 million lower than the $239.9 million (total
debt of $262.5 million less $22.6 million of cash) at March 31, 2013. Cash
flows used in operating activities for the first nine months of fiscal 2014
were $14.0 million compared to $73.8 million in fiscal 2013.
The
improvement in operating cash flows was primarily related to changes in working
capital needs in fiscal 2014 associated with improvements in managing
outstanding accounts receivable and reducing required inventory levels. In
addition, no contributions to the pension plan were made in fiscal 2014
compared to $29.4 million in the first nine months of fiscal 2013.
Restructuring:
The
previously announced restructuring actions are nearing their conclusion as
planned. The restructuring actions for
the third quarter resulted in pre-tax income of $0.8 million related to the
reduction of an estimated reserve related to plant closure costs. Net pre-tax
restructuring costs for the first nine months of fiscal 2014 were $5.1 million;
the cost estimates for fiscal 2014 remain unchanged at $6 million to $8
million. Incremental pre-tax restructuring savings for the first nine months of
fiscal 2014 were $1.8 million; the incremental savings estimate for fiscal 2014
also remains unchanged at $2 million to $4 million.
Share
Repurchase Program:
On
August 8, 2012, the Board of Directors of the Company authorized up to $50
million in funds associated with the common share repurchase program with an
expiration date of June 30, 2014. On January 22, 2014, the Board of Directors
of the Company authorized up to an additional $50 million in funds for use in
the Company's common share repurchase program with an extension of the
expiration date to June 30, 2016.
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 2014, the Company repurchased 1,479,626
shares on the open market at an average price of $20.32 per share.
Outlook
:
Due
to the slow start to the spring lawn and garden selling season in North America
following an unusually cold winter season, we are revising our fiscal 2014 net
income projections to be in the range of $43 million to $50 million or $0.88 to
$1.04 per diluted share. These net
income projections exclude the impact of any additional share repurchases and
costs related to our announced restructuring actions.
Our
market projections for the U.S. market remain at 4-6% higher than last year's
season. The lower end of our range contemplates a later start to the spring
lawn and garden selling season in the U.S., which could potentially have the
impact of extending the season past the end of our fiscal year end and into our
fiscal 2015. The higher side of our guidance contemplates a U.S. market higher
than 6% for the season assuming that we capture these sales in our fiscal
fourth quarter.
Our
fiscal 2014 consolidated net sales are projected to be in a range of $1.88
billion to $1.92 billion. Excluding the impact of restructuring charges,
operating income margins are estimated to be in a range of 3.8% to 4.2% and
interest expense and other income are forecasted to be approximately $18
million and $7 million, respectively. Excluding the impact of restructuring
charges, the effective tax rate for the year is anticipated to be in a range of
28% to 29%. We anticipate capital expenditures for the year to be approximately
$45 million to $50 million.
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