Highlights:
- Third quarter fiscal 2015 consolidated net sales were $619.0 million, a decrease of $9.4 million or 1.5% compared to the prior year
- Third quarter fiscal 2015 consolidated adjusted net income was $39.2 million, an improvement from the adjusted net income of $38.7 million in the third quarter of fiscal 2014
- Third quarter fiscal 2015 adjusted diluted earnings per share was $0.86, an improvement from the adjusted diluted earnings per share of $0.81 in the prior year
- Tax credits recognized in third quarter benefited earnings by $4.7 million
- Fiscal 2015 earnings guidance lifted to $1.27 to $1.43 per diluted share before restructuring and acquisition expenses from previous guidance of $1.20 to $1.35 per diluted share.
MILWAUKEE – April 23 -- "While sales were relatively
consistent with last year, we continued to make progress on introducing new
products and improving our operations," commented Todd J. Teske,
Chairman, President and Chief Executive Officer of Briggs and Stratton
Corporation. Teske continued,
"The restructuring of our Products
business to focus on higher margin products and streamline our manufacturing
operations has contributed to improved Products segment earnings of
nearly $5 million in the quarter and $20 million for our
fiscal year to date. We also launched several innovative products this spring
including our new EXi engine that never requires oil changes and our new
In-Start lithium-ion electric starting technology providing users with our
easiest push button starting engine ever."
Consolidated Results:
Consolidated net sales for the third quarter
of fiscal 2015 were $619.0 million, a decrease of $9.4
million or 1.5% from the third quarter of fiscal 2014. Engines shipped to
third party OEM customers increased slightly in the quarter; however, shipments
to our Products segment were down in the quarter due to higher shipments
earlier in the year to enable production in advance of
the McDonough plant closure.
The strengthening of the US dollar,
predominantly against the Australia dollar, Brazilian real and Euro,
led to an unfavorable foreign exchange impact on sales of $6.7 million. In
addition, net sales were unfavorably impacted by reduced generator sales and
unfavorable mix of engines shipped.
Net sales benefited by higher sales in
international markets, particularly Australia and Europe, and
the results of the Allmand acquisition, which closed in August of this fiscal
year. The fiscal 2015 third quarter consolidated net income, which includes
restructuring expenses and acquisition-related charges, was $33.9
million or $0.75 per diluted share. The third quarter of fiscal
2014 consolidated net income, which included restructuring charges,
was $39.2 million or $0.82 per diluted share. The fiscal
2015 third quarter consolidated net income includes a tax benefit of $4.7
million related to incremental research and development tax credits,
partially offset by an unfavorable foreign exchange impact of
approximately $3.4 million.
Consolidated net sales for the first nine months of fiscal 2015
were $1.36 billion, a decrease of $6.4 million or 0.5% from the
first nine months of fiscal 2014. The decrease is due to reduced shipment
volumes of engines to OEM customers in North America due to slightly
elevated channel inventories, lower generator sales from a lack of major power
outages, and an unfavorable foreign exchange impact of approximately$14.0
million, predominantly due to the weakening of the Euro, Australian dollar, and
Brazilian real.
The decrease in net sales was partially offset by higher sales
in Europe and Australia, higher sales of commercial lawn and garden
equipment and pressure washers in North America, and the results of the
Allmand acquisition.
The fiscal 2015 nine months consolidated net income, which
includes $24.9 million of restructuring expenses and
acquisition-related charges, was $25.6 million or $0.56 per
diluted share. The first nine months of fiscal 2014 consolidated net income,
which included$5.1 million of restructuring charges, was $20.5
million or $0.43 per diluted share. The fiscal 2015 nine months
consolidated net income includes an unfavorable foreign exchange impact of
approximately $5.4 million, partially offset by a tax benefit of $5.0
million related to incremental research and development tax credits.
Non-GAAP Financial Measures and Segment Reporting
This release refers to non-GAAP financial measures including
"adjusted gross profit", "adjusted segment income (loss)",
and "adjusted net income (loss)". Refer to the accompanying
financial schedules for supplemental financial data and corresponding
reconciliations of these non-GAAP financial measures to certain GAAP financial
measures.
Beginning in fiscal 2015, the Company is using "segment
income (loss)" as the primary measure to evaluate operating performance
and allocate capital resources for the Engines and Products segments.
Previously, the Company used income from operations. Segment income (loss) is
defined as income (loss) from operations plus equity in earnings of
unconsolidated affiliates. The Company has recast prior year amounts for
comparability, and has included a reconciliation from consolidated segment
income (loss) to income (loss) from operations in the accompanying Adjusted
Segment Information table.
Engines Segment:
Three Months Ended
Fiscal March
|
Nine Months Ended
Fiscal March
|
|||||||
(In Thousands)
|
2015
|
2014
|
2015
|
2014
|
||||
Net
Sales
|
$ 432,248
|
$ 452,359
|
$ 857,067
|
$ 901,858
|
||||
Gross Profit as Reported
|
$ 98,885
|
$ 107,930
|
$ 189,580
|
$ 187,423
|
||||
Restructuring Charges
|
-
|
(774)
|
-
|
2,622
|
||||
Adjusted Gross Profit
|
$ 98,885
|
$ 107,156
|
$ 189,580
|
$ 190,045
|
||||
Gross Profit % as Reported
|
22.9%
|
23.9%
|
22.1%
|
20.8%
|
||||
Adjusted Gross Profit %
|
22.9%
|
23.7%
|
22.1%
|
21.1%
|
||||
Segment Income as Reported
|
$ 54,928
|
$ 62,071
|
$ 59,967
|
$ 54,805
|
||||
Restructuring Charges
|
-
|
(774)
|
-
|
3,047
|
||||
Adjusted Segment Income
|
$ 54,928
|
$ 61,297
|
$ 59,967
|
$ 57,852
|
||||
Segment Income % as Reported
|
12.7%
|
13.7%
|
7.0%
|
6.1%
|
||||
Adjusted Segment Income %
|
12.7%
|
13.6%
|
7.0%
|
6.4%
|
||||
Net sales were $432.2 million in the third quarter of
fiscal 2015, a decrease of $20.1 million or 4.5% from the prior year.
Total engine volumes shipped in the quarter decreased by 1.6% or approximately
50,000 engines. Engines shipped to third party OEM customers increased slightly
in the quarter; however, shipments to our Products segment were down in the
quarter due to higher shipments earlier in the year to enable production in
advance of the McDonough plant closure. Net sales also decreased due
to an unfavorable sales mix. Despite an unfavorable foreign exchange impact
of $4.3 million, largely due to the weakening of the Euro, sales into the
European market increased on improved placement of our engines and as channel
inventories were low following an improved lawn and garden season last season.
Adjusted segment income in the third quarter of fiscal 2015
was $54.9 million, a decrease of $6.4 million from the prior
year. The adjusted gross profit percentage was 22.9% in the third quarter of
fiscal 2015, a decrease of 80 basis points from the prior year. Manufacturing
throughput decreased by 6% during the quarter which reduced adjusted gross
profit margins by approximately 140 basis points. The decrease was largely
timing related as we accelerated production to earlier quarters in fiscal 2015 in
order to accommodate the footprint restructuring of our Products segment and to
build engine inventories in advance of beginning production of the EXi engine
platform in the second fiscal quarter.
In addition, unfavorable foreign exchange, primarily related to
the Euro, reduced adjusted gross profit margins by 70 basis points. Partially
offsetting the lower adjusted gross profit margins were the previously
announced retirement plan changes, which improved fiscal 2015 adjusted gross
profit margins by $3.2 million, or 70 basis points. Manufacturing
efficiency improvements in fiscal 2015 also helped offset the decrease in
adjusted gross profit margins.
Engineering, selling, general and administrative expenses
decreased $2.2 million largely due to the retirement plan changes. Higher
compensation expense in fiscal 2015 was offset by the benefit of the movement
in foreign exchange rates.
Products Segment:
Three Months Ended
Fiscal March
|
Nine Months Ended
Fiscal March
|
|||||||
(In Thousands)
|
2015
|
2014
|
2015
|
2014
|
||||
Net
Sales
|
$ 211,135
|
$ 205,160
|
$ 576,313
|
$ 529,724
|
||||
Gross Profit as Reported
|
$ 19,908
|
$ 22,365
|
$ 64,505
|
$ 62,149
|
||||
Restructuring Charges
|
7,088
|
-
|
20,780
|
2,082
|
||||
Acquisition Related Charges
|
-
|
-
|
1,172
|
-
|
||||
Adjusted
Gross Profit
|
$ 26,996
|
$ 22,365
|
$ 86,457
|
$ 64,231
|
||||
Gross Profit % as Reported
|
9.4%
|
10.9%
|
11.2%
|
11.7%
|
||||
Adjusted Gross Profit %
|
12.8%
|
10.9%
|
15.0%
|
12.1%
|
||||
Segment Loss as Reported
|
$ (8,128)
|
$ (4,913)
|
$ (20,125)
|
$ (16,783)
|
||||
Restructuring
Charges
|
8,031
|
-
|
23,261
|
2,082
|
||||
Acquisition Related Charges
|
110
|
-
|
1,641
|
-
|
||||
Adjusted Segment Income (Loss)
|
$
13
|
$ (4,913)
|
$ 4,777
|
$ (14,701)
|
||||
Segment Loss % as Reported
|
-3.8%
|
-2.4%
|
-3.5%
|
-3.2%
|
||||
Adjusted Segment Income (Loss) %
|
0.0%
|
-2.4%
|
0.8%
|
-2.8%
|
||||
Net sales were $211.1 million in the third quarter of
fiscal 2015, which was an increase of $6.0 million or 2.9% from the
prior year. This increase was due to higher sales in international markets,
increased commercial lawn and garden equipment sales in the North American
market and the results of the Allmand acquisition. Growing conditions in
the Australia market improved in fiscal 2015, which led to increased
net sales. Partially offsetting the increase was an unfavorable foreign
exchange impact of $2.4 million, primarily related to the weakening of the
Australian dollar and Brazilian real. In addition, generator sales decreased
due to fewer major power outages.
Adjusted segment income in the third quarter of fiscal 2015
was $0.0 million, an improvement of $4.9 million from the prior
year adjusted segment loss. The adjusted gross profit percentage of 12.8%
increased by 190 basis points year over year. Manufacturing throughput
for the first three quarters of fiscal 2015 increased by over 20%.
This favorable absorption of fixed costs led to an improvement
of approximately 190 basis points in the third quarter. In addition,
favorable sales mix improved adjusted gross margins due to a focus on selling
higher margin lawn and garden equipment and the benefit of the Allmand
acquisition. Partially offsetting the increase in adjusted gross profit margins
was an unfavorable foreign exchange impact of approximately 80 basis points
primarily due to the weakening of the Australian dollar and Brazilian real.
Adjusted engineering, selling, general and administrative
expenses remained consistent year over year. Higher spend due to the
Allmand acquisition and increased compensation expense was offset by $2.3
million in savings related to the restructuring actions announced
in July 2014.
Allmand Bros., Inc. Acquisition:
On August 29, 2014, the Company completed the acquisition
of Allmand Bros., Inc. for approximately $60 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 historical annual
net sales of approximately $80 million.
Corporate Items:
The effective tax rates for the third quarter and first nine
months of fiscal 2015 were 20.2% and 5.7%, compared to 26.1% and 26.6% for
the same respective periods last year. The tax rates for the third
quarter and first nine months of fiscal 2015 were primarily driven by
incremental federal research and development (RandD) tax credits related to
prior years offset by reserves for unrecognized tax positions for a net tax
benefit of $4.7 million and $5.0 million, respectively.
In
addition, the tax rate for the first nine 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 third quarter
and the first nine months of fiscal 2014 included a taxpayer election filed
pursuant to the outcome of a U.S. court case that provided the Company
precedent to record a tax benefit of $2.9 million for the
permanent exclusion of qualified export activity from prior years' taxable
income.
Financial Position:
Net
debt at March 29, 2015 was $235.4 million (total debt
of $285.1 million less $49.7 million of cash),
or $117.6 million higher than the $117.8 million (total
debt of $225.0 million less $107.2 million of cash)
at March 30, 2014. Cash flows used in operating activities for fiscal 2015
were $52.1 million compared to $14.0 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. In addition, the Company paid cash of $59.9 millionfor the
Allmand acquisition in the first nine months of fiscal 2015 compared to no acquisitions
in the same respective period last year.
Restructuring:
During the third 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 initiated production of pressure washers at
our Milwaukee plant during the third quarter and ceased production at
the McDonough, Georgia plant shortly after the end of the third
quarter. Pre-tax restructuring costs for the third quarter and first nine
months of fiscal 2015 were $8.0 million and $23.3 million,
respectively, and pre-tax savings were $2.3 million and $5.1
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 nine months of fiscal 2015, the
Company repurchased approximately 2.0 million shares on the open market at an average
price of $19.40 per share. As of March 29, 2015, the Company has
remaining authorization to repurchase up to approximately $48
million of common stock with an expiration date of June 30, 2016.
Outlook:
We are increasing our estimated earnings for fiscal 2015 to take
into consideration the operating results and additional share repurchases
during the first three fiscal quarters as well as the tax benefit of $4.7
million recognized in the third quarter for research and development tax
credits. We have also considered the continued strengthening of the U.S.
dollar relative to many currencies we sell in outside of the United
States.
We now project our fiscal 2015 full year net income to be in a
range of$57 million to $64 million or $1.27 to $1.43 per diluted
share prior to the impact of acquisition expenses, additional share
repurchases, or costs related to our announced restructuring actions.
We now project consolidated net sales for fiscal 2015 to be in a range
of $1.90 billion to $1.95 billion.
The
decrease in the sales guidance is primarily related to slowing growth rates in
sales of product in international regions as well as the impact of the
strengthening U.S. dollar. We continue to estimate the retail market for
U.S. lawn and garden products will increase an estimated 1-4% in the next
season; however, it is possible that sales of lawn and garden products shift to
later in the season due to retail sales patterns, retailer reorders, and OEM
production schedules.
Operating margins are expected to be in a range of 4.9% to 5.2%,
an improvement over fiscal 2014 reflecting the strategic actions taken to focus
on higher margin products and the positive impacts of the restructuring
actions. Interest expense and other income are estimated to be approximately $19
million and $7 million, respectively. The effective tax rate
excluding restructuring charges is projected to be in a range of 25% to 26% and
capital expenditures are projected to be approximately $60 million to $65
million.
