MILWAUKEE -- April 28 -- Briggs and Stratton Corporation today announced financial results for its third fiscal quarter and first nine months ended March 27, 2011.
Highlights:
Third quarter fiscal 2011 consolidated net sales of $720.3 million increased $25.8 million or 3.7% from the third quarter of fiscal 2010. For the first nine months of fiscal 2011, consolidated sales were $1.5 billion, an increase of $92.5 million or 6.6% from the same period of fiscal 2010.
Third quarter fiscal 2011 consolidated net income of $51.5 million improved by $8.8 million from the same period of fiscal 2010 after adjusting for a litigation settlement included in the prior year period of $18.7 million after tax.
Net debt as of the end of the third fiscal quarter 2011 was $240.2 million or $80.4 million less than at the end of the third quarter of fiscal 2010.
"Results for the third quarter of fiscal 2011 were driven by sales and operating improvements within both of our Engines and Power Products Segments," commented Todd J. Teske, Chairman, President and Chief Executive Officer of Briggs and Stratton. "We are very pleased with the strong sales growth we have achieved in our international markets this year. It is one of many outcomes demonstrating our team's focus on delivering results against the core pillars of our strategy. We remain cautiously optimistic regarding the upcoming lawn and garden season here in the U.S. despite the on-going economic challenges and the impact of higher gasoline prices on consumer spending."
Consolidated Results:
Consolidated net sales for the third quarter of fiscal 2011 were $720.3 million, an increase of $25.8 million or 3.7% when compared to the same period a year ago. Fiscal 2011 third quarter consolidated net income was $51.5 million or $1.02 per diluted share. The third quarter of fiscal 2010 consolidated net income was $24.1 million or $0.48 per diluted share.
Included in consolidated net income for the fiscal 2010 third quarter was a litigation settlement of $30.6 million ($18.7 million after-tax or $0.37 per diluted share). After considering the impact of the litigation settlement, third quarter fiscal 2011 consolidated net income improved by $8.8 million or $0.17 per diluted share over the adjusted consolidated net income of $42.7 million or $0.85 per diluted share in the third quarter of fiscal 2010.
Consolidated net sales for the first nine months of fiscal 2011 were $1.5 billion, an increase of $92.5 million or 6.6% when compared to the same period a year ago. For the first nine months of fiscal 2011, consolidated net income was $42.2 million or $0.84 per diluted share. The first nine months of fiscal 2010 consolidated net income was $18.4 million or $0.36 per diluted share.
Included in consolidated net income for the first nine months of fiscal 2011 was a $3.5 million pre-tax charge ($2.2 million after tax or $0.04 per diluted share) related to previously announced organization changes and $3.9 million of additional pre-tax costs ($2.4 million after tax or $0.05 per diluted share) associated with the redemption premium of the 8.875% Senior Notes and the write-off of the related deferred financing costs. Included in consolidated net income for the first nine months of fiscal 2010 was a litigation settlement of $30.6 million ($18.7 million after-tax or $0.37 per diluted share). After considering the impact of items related to the organization changes, debt redemption and litigation settlement, adjusted consolidated net income for the first nine months of fiscal 2011 was $46.7 million or $0.93 per diluted share, which was higher by $9.6 million or $0.20 per diluted share compared to the first nine months of fiscal 2010 adjusted consolidated net income of $37.1 million or $0.73 per diluted share.
Engines Segment:
Engines Segment fiscal 2011 third quarter net sales were $503.8 million, which was $20.8 million or 4.3% higher than the prior year period. This increase from the same quarter last year is primarily due to higher shipment volumes and slightly increased engine pricing, partially offset by an unfavorable mix of product shipped that reflected lower volumes of units used on riding lawn and garden equipment.
The Engines Segment gross profit percentage was 24.7% in the third quarter of fiscal 2011, or slightly lower from 24.8% in the third quarter of fiscal 2010. The change was attributable to higher commodity costs and increased salaries and benefits including a $2.3 million increase in pension benefits expense, offset by slightly increased engine pricing.
The Engines Segment fiscal 2011 third quarter income from operations was $77.5 million, an increase of $3.5 million from fiscal 2010 third quarter adjusted income from operations. The increase is due to the improvement in net sales partially offset by an increase in non-manufacturing salaries and benefits including a $1.9 million increase in pension benefits expense.
Engines Segment net sales for the first nine months of fiscal 2011 were approximately $1.0 billion, which was $58.2 million or 6.1% higher than the prior year period. This increase from the same period last year is primarily due to higher international engine unit shipments to European and Asian OEMs as well as slightly increased engine pricing.
The Engines Segment gross profit percentage increased to 23.4% for the first nine months of fiscal 2011 from 22.4% in the first nine months of fiscal 2010. This improvement was primarily due to increased production volumes and slightly increased engine pricing partially offset by higher commodity costs and increased salaries and benefits. The increase in salaries and benefits includes a $7.2 million increase in pension benefits expense and $2.2 million of higher salaries and benefits due to temporary reductions in salaries and the 401(k) match implemented in the first half of fiscal 2010.
The Engines Segment adjusted income from operations for the first nine months of fiscal 2011 was $92.9 million, an increase of $6.8 million from the first nine months of fiscal 2010 adjusted income from operations. The increase is due to the improvement in net sales and the gross profit percentage offset by an increase in non-manufacturing salaries and benefits including a $5.4 million increase in pension benefits expense and $1.5 million higher expenses due to temporary reductions in salaries and the 401(k) match implemented in the first half of fiscal 2010.
Power Products Segment:
Power Products Segment fiscal 2011 third quarter net sales were $267.5 million, which was $12.1 million or 4.8% greater than the prior year period. This improvement was due primarily to increased unit shipment volumes of snow throwers and ZTRs, partially offset by reduced shipment volumes of portable generators as a result of fewer wide spread power outages caused by ice storms.
The Power Products Segment gross profit percentage increased to 9.7% for the third quarter of fiscal 2011 from 7.2% in the third quarter of fiscal 2010. The improvement over the prior year was attributable to increased sales of higher margin products to dealers, decreased manufacturing spending and increased absorption on higher production volumes, partially offset by higher commodity costs and warranty expense. The decrease in manufacturing spending includes the absence of $3.0 million of transition costs from the closure of our Jefferson manufacturing facility, which were incurred in the third quarter of fiscal 2010.
The Power Products Segment fiscal 2011 third quarter income from operations was $1.7 million, an increase of $8.9 million compared to the third quarter of fiscal 2010.
Power Products Segment net sales for the first nine months of fiscal 2011 were $621.5 million, which was $35.4 million or 6.0% greater than the prior year period. This improvement was due primarily to increased unit shipment volumes of snow throwers and ZTRs, partially offset by reduced shipment volumes of pressure washers and portable generators as a result of lower consumer demand and retailers and dealers closely managing inventories in these categories.
The Power Products Segment gross profit percentage decreased to 8.9% for the first nine months of fiscal 2011 from 9.8% in the first nine months of fiscal 2010. This decline between years resulted from higher manufacturing spending, lower absorption primarily related to the decreased production of portable generators, as well as increased expenses related to salaries and benefits. The increase in manufacturing spending relates to higher commodity costs, manufacturing inefficiencies in launching new products, increased warranty expense, and increased freight expense. The increase in salaries and benefits includes $0.8 million higher expenses attributable to temporary reductions in salaries and the 401(k) match implemented in the first half of fiscal 2010.
The Power Products Segment adjusted loss from operations for the first nine months of fiscal 2011 was $14.6 million, or $5.9 million higher than the loss from operations of $8.6 million for the same period one year ago. The increased loss from operations was primarily caused by the previously discussed manufacturing cost increases as well as an increase in non-manufacturing salaries and benefits including $0.6 million higher expenses attributable to temporary reductions in salaries and the 401(k) match implemented in the first half of fiscal 2010.
Corporate Items:
As previously announced, in December 2010 the company issued $225 million aggregate principal amount of 6.875% Senior Notes due December 2020. Net proceeds were primarily used to redeem the remaining outstanding principal of the 8.875% Senior Notes due March 2011.
Interest expense was lower for the third quarter of fiscal 2011 due to lower average outstanding borrowings as well as the reduced interest rate associated with the refinanced Senior Notes. Interest expense was lower for the first nine months of fiscal 2011 due to lower average outstanding borrowings, partially offset by $3.9 million of pre-tax charges related to the redemption premium on the 8.875% Senior Notes and the write-off of related deferred financing costs.
The third quarter and first nine months effective tax rate for fiscal 2011 was32.4% and 30.3%, respectively, versus 27.1% and 22.3% effective tax rate in the same respective periods last year. The variation reflected between years was due to the required recognition of the tax effect of certain events as discrete items in the quarter in which they occurred rather than in the overall expected annual tax rate.
Financial Position:
Net debt at March 27, 2011 was $240.2 million (total debt of $283.0 million less $42.8 million of cash), an improvement of $80.4 million from the $320.6 million (total debt of $348.5 million less $27.9 million of cash) at March 28, 2010. Cash used by operating activities for the first nine months of fiscal 2011 was $100.3 million, or $83.8 million higher compared to $16.5 million in the first nine months of fiscal 2010. The increase in cash used for operating activities is primarily due to working capital requirements to replenish inventory from lower levels at the end of fiscal 2010 and due to timing of payments associated with accounts receivable, accounts payable and accrued liabilities, offset by higher net income.
Outlook:
The company maintains its guidance that fiscal 2011 net income on a GAAP basis will be in the range of $57 to $68 million or $1.13 to $1.35 per diluted share. Consolidated net sales are projected to be approximately 2% to 5% higher than in fiscal 2010.
Engines Segment sales are forecasted higher on modest volume and pricing improvements while the Power Products Segment sales are forecasted higher primarily due to higher expected volumes of lawn and garden equipment.
Demand for portable generators and the related engines due to landed hurricane activity have not been included in our fiscal 2011 sales forecast.
Operating income margins for fiscal 2011 are projected to be in the range of 4.7% to 5.2%, and interest expense and other income are forecasted to be in the range of $23 million to $24 million and $6 million to $7 million, respectively. The effective tax rate for the full year is projected to be in a range of 30% to 33%.
