Briggs and Stratton Reports Higher Sales and Earnings for the Second Quarter of Fiscal Year 2015

MILWAUKEE, Jan. 21, 2015 -- Briggs and Stratton Corporation today announced financial results for its second fiscal quarter ended December 28, 2014.

Highlights:

• Second quarter fiscal 2015 consolidated net sales were $444.3 million, an increase of $27.7 million or 6.6% compared to the prior year
• Second quarter fiscal 2015 consolidated adjusted net income was $11.9 million, an improvement from the adjusted net income of $2.3 million in the second quarter of fiscal 2014
• Second quarter fiscal 2015 adjusted diluted earnings per share was $0.26, an improvement from the adjusted diluted earnings per share of $0.05 in the prior year

 "We are pleased to report improved quarterly results with margin improvements in both our engines and products businesses. These improvements reflect our cost reduction efforts as well as our focus on new product innovation and selling higher margin products," commented Todd J. Teske, Chairman, President and Chief Executive Officer of Briggs and Stratton Corporation. 

Teske continued, "Looking forward to the upcoming U.S. lawn and garden season, we have gained additional placement of our engines on lawn and garden products as compared to our placement last year. We continue to expect modest industry growth in the upcoming season. Further, we are again introducing several new products this spring including the industry's only engine that doesn't require an oil change.  All of this together sets us up for continued improvement for the last six months of our fiscal year.

However, we expect our OEM customers will ramp up their seasonal production later than last year in response to higher channel inventories of residential lawn and garden equipment causing our quarterly results to shift between quarters."

Consolidated Results:

Consolidated net sales for the second quarter of fiscal 2015 were $444.3 million, an increase of $27.7 million or 6.6% from the second quarter of fiscal 2014. The increase primarily relates to a favorable mix of engines sold, higher sales of pressure washers, snow throwers and commercial lawn and garden equipment in North America, and the results of the Allmand acquisition, which closed in August of this fiscal year. 

The increase in net sales was partially offset by reduced shipment volumes of small engines used on walk mowers in North America due to elevated channel inventories following this past season and lower generator sales due to adequate channel inventories and no major storm activity. The fiscal 2015 second quarter consolidated net income, which includes restructuring expenses and acquisition-related charges, was $6.9 million or $0.15 per diluted share. The second quarter of fiscal 2014 consolidated net income, which included restructuring charges, was $0.7 million or $0.01 per diluted share.

Consolidated net sales for the first six months of fiscal 2015 were $736.9 million, an increase of $3.0 million or 0.4% from the first six months of fiscal 2014, due to higher sales of pressure washers, commercial lawn and garden equipment and snow throwers in North America as well as the results of the Allmand acquisition.  

This increase in net sales was partially offset by reduced shipment volumes of small engines used on walk mowers in North America and lower sales of generators. 

The fiscal 2015 six months consolidated net loss, which includes restructuring expenses and acquisition-related charges, was $8.3 million or $0.19 per diluted share. 

The first six months of fiscal 2014 consolidated net loss, which included restructuring charges, was $18.6 million or $0.41 per diluted share.

Engines Segment:

Engines segment net sales of $271.7 million in the second quarter of fiscal 2015 increased $6.0 million or 2.1% from the prior year. Net sales increased due to an improved sales mix of large engines used on lawn and garden equipment for the North American and European markets and higher service parts sales.

Total engine volumes shipped in the quarter decreased by 2.2% or approximately 40,000 engines. The decrease in unit shipments was due to reduced shipments of small engines used on walk mowers in North America resulting from elevated inventories following this past lawn and garden season.

Engines adjusted segment income in the second quarter of fiscal 2015 was $18.9 million, an improvement of $7.5 million from the prior year. Engines segment adjusted gross profit margins improved 210 basis points year over year on an improved product sales mix of large engines and lower retirement plan expense.

Favorable sales mix, which was driven by higher service parts sales and proportionately higher sales of large engines, improved adjusted gross profit margins by 100 basis points. Favorable foreign exchange, primarily related to the Japanese Yen improved adjusted gross profit margins by 50 basis points.

The previously announced retirement plan changes, which were implemented in January of calendar 2014, improved fiscal 2015 adjusted gross profit margins by $2.4 million, or 90 basis points. These improvements were partially offset by slightly lower production levels and certain production cost increases. The retirement plan changes also reduced engineering, selling, general and administrative expenses by $1.9 million, which helped offset increased compensation expense.

Products Segment:

Products segment net sales of $199.1 million in the second quarter of fiscal 2015 increased by $27.5 million or 16% from the prior year. This increase was due to higher sales of pressure washers, commercial lawn and garden equipment and snow throwers in North America and the results of the Allmand acquisition. Partially offsetting the increase were lower sales of riding mowers and snow throwers in Europe following last year's mild winter and lower generator sales due to adequate channel inventories and no major storm activity.

Products adjusted segment income in the second quarter of fiscal 2015 was $3.7 million, an improvement of $7.7 million from the prior year adjusted segment loss. Products adjusted gross profit margins increased by 310 basis points year over year due to improved sales mix, including the Allmand acquisition and higher manufacturing throughput. Favorable sales mix improved adjusted gross margins by 340 basis points due to a focus on selling higher margin lawn and garden equipment and the benefit of the Allmand acquisition. In addition, manufacturing throughput increased year over year by 36%, benefitting adjusted gross margins by approximately 160 basis points. Throughput is increased due to higher production of snow throwers as well as pressure washers and riding mowers to facilitate the previously announced upcoming closure of the McDonough, Georgia plant.  Offsetting the increase in adjusted gross profit margins was an unfavorable foreign exchange impact of approximately 150 basis points primarily due to the devaluation of the Australian dollar and Brazilian Real, and the unfavorable impact of 40 basis points due to slightly higher material costs. Engineering, selling, general and administrative expenses increased $3.2 million due to the Allmand acquisition and increased compensation expense, partially offset by $1.7 million in savings related to the restructuring initiative announced in July 2014.

Allmand Bros., Inc. Acquisition:

On August 29, 2014, the Company completed the acquisition of Allmand Bros., Inc. for approximately $62 million in cash, net of cash acquired.  Allmand is a leading designer and manufacturer of high quality towable light towers, industrial heaters, and solar LED arrow boards. Allmand, which is included within our Products segment, has annual net sales of approximately $80 million.

Corporate Items:

The effective tax rates for the second quarter and first six months of fiscal 2015 were 33.7% and 45.8%, compared to 69.8% and 25.5% for the same respective periods last year.  The tax rates for the second quarter and first six months of fiscal 2015 were primarily due to losses incurred at certain foreign subsidiaries for which the Company does not receive tax benefits and the re-enactment of the U.S. research and development tax credit. 

In addition, the tax rate for the first six months of fiscal 2015 was impacted by the reversal of previously recorded reserves as a result of the effective settlement of the Company's IRS audit. The tax rates for the second quarter and first six months of fiscal 2014 were primarily due to losses incurred at certain foreign subsidiaries for which the Company does not receive tax benefits.

Financial Position:

Net debt at December 28, 2014 was $260.3 million (total debt of $312.0 million less $51.7 million of cash), or $133.5 million higher than the $126.8 million (total debt of $225.0 million less $98.2 million of cash) at December 29, 2013. Cash flows used in operating activities for fiscal 2015 were $114.0 million compared to $45.2 million in fiscal 2014.

The increase in operating cash flows used was primarily related to higher inventory levels to facilitate the upcoming closure of the McDonough plant and the introduction of a new engine line in fiscal 2015, partially offset by improvements in managing outstanding accounts receivable. In addition, the Company paid cash of $62.1 million for the Allmand acquisition in the first six months of fiscal 2015 compared to no acquisitions in the same respective period last year.

Restructuring:

During the second quarter of fiscal 2015, the Company made progress on implementing the previously announced restructuring actions to narrow its assortment of lower-priced Snapper consumer lawn and garden equipment and consolidate its Products segment manufacturing facilities in order to reduce costs.  The Company expects to close its McDonough plant in the fourth quarter of fiscal 2015 and consolidate production into existing facilities in Wisconsin and New York. 

Pre-tax restructuring costs for the second quarter and first six months of fiscal 2015 were $7.4 million and $15.2 million, respectively, and pre-tax savings were $1.7 million and $2.8 million, respectively. Pre-tax restructuring cost estimates for fiscal 2015 remain unchanged at $30 million to $37 million. Total annual cost savings as a result of these actions are anticipated to be approximately $15 million to $20 million with approximately $5 million to $7 million expected to be realized in fiscal 2015 and the remainder realized in fiscal 2016.

Share Repurchase Program:

On January 22, 2014, the Board of Directors of the Company authorized up to $50 million in funds for use in the Company's common share repurchase program. On August 13, 2014, the Board of Directors authorized up to an additional $50 million in funds for use in the common share repurchase program. 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 six months of fiscal 2015, the Company repurchased 1,428,588 shares on the open market at an average price of $19.33 per share. As of December 28, 2014, the Company has remaining authorization to repurchase up to approximately $60 million of common stock with an expiration date of June 30, 2016.

Outlook:

Given the first half operating performance and additional shares repurchased through the second fiscal quarter, we are adjusting our full year outlook to increase the lower end of our earnings guidance.  We now project our fiscal 2015 full year net income to be in a range of $55 million to $63 million or $1.20 to $1.35 per diluted share prior to the impact of acquisition expenses, additional share repurchases, or costs related to our announced restructuring actions.  This outlook includes the results of the Allmand acquisition which closed on August 29, 2014 and gives effect to recent strengthening of the U.S. dollar relative to several currencies. 

We continue to project consolidated net sales for fiscal 2015 to be in a range of $1.94 billion to $2.0 billion which contemplates the retail market for U.S. lawn and garden products will increase an estimated 1-4% in the next season. We are also increasing our estimated operating income margins for fiscal 2015. 

Operating margins are expected to be in a range of 4.7% to 5.2%, an improvement over fiscal 2014 reflecting the positive impacts of the restructuring actions, particularly in the last quarter of the fiscal year. Interest expense and other income are estimated to be approximately $19 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 $60 million to $65 million.