MILWAUKEE
-- Jan. 23 -- Briggs and Stratton Corporation today announced financial results
for its second fiscal quarter ended December 29, 2013.
Highlights:
- Second quarter fiscal 2014 consolidated net sales were $416.6 million, a decrease of $22.5 million or 5.1% from the prior year.
- Increased sales of lawn and garden equipment were offset by lower sales of standby and portable generators compared to last year when Hurricane Sandy occurred.
- The reduced storm activity reduced net sales and diluted earnings per share by an estimated $55 million and $0.12 in the fiscal quarter compared with last year.
- Second quarter 2014 consolidated net income excluding restructuring charges was $2.3 million, or $1.4 million lower than the adjusted net income of $3.7 million in the second quarter of fiscal 2013.
- The Company recorded pre-tax restructuring charges of $2.3 million ($1.6 million after tax or $0.04 per diluted share) during the three months ended December 29, 2013.
"During
the quarter we continued to see year over year sales of lawn and garden
equipment and related parts sales improving both in North America and in
Australia," commented Todd J. Teske, Chairman, President and Chief
Executive Officer of Briggs and Stratton Corporation.
"While these positive trends were not
enough to offset the sales we saw last year related to storms Isaac and Sandy,
we remain optimistic for an improved lawn and garden market this spring,"
continued Teske. "Adjusted margins expanded in the quarter in both the
engines and products businesses as we continue to focus on reducing costs,
streamlining our operations and delivering margin expanding innovations to
consumers.
This
spring we are excited to launch several new engine and product solutions
including Quiet Power Technology™ that reduces the sound of a walk mower as
much as 80%, Ready Start® push button starting for riding mowers, and the new
Powerflow + Technology™ pressure washer that has both variable flow and
pressure capabilities, to name just a few."
Consolidated
Results:
Consolidated
net sales for the second quarter of fiscal 2014 were $416.6 million, a decrease
of $22.5 million or 5.1% from the second quarter of fiscal 2013, due to lower sales
of standby and portable generators, partially offset by higher sales of engines
and lawn and garden products.
The
quarterly impact of fewer weather related events creating demand for generators
and the related engines was an estimated sales decrease of $55 million. The
fiscal 2014 second quarter consolidated net income, which includes
restructuring charges, was $0.7 million or $0.01 per diluted share.
The
second quarter of fiscal 2013 consolidated net loss, which includes
restructuring charges, was $0.6 million or $0.02 per diluted share. The impact
of the reduced engines and generator sales in the quarter was an estimated
$0.12 per diluted share compared with last year's second fiscal quarter.
Included
in the consolidated net income for the second quarter of fiscal 2014 were
pre-tax charges of $2.3 million related to restructuring actions. Included in
consolidated net loss for the second quarter of fiscal 2013 were pre-tax
charges of $6.6 million related to restructuring actions. After removing the impact
of these items, the adjusted consolidated net income for the second quarter of
fiscal 2014 was $2.3 million or $0.05 per diluted share, which was $1.4 million
lower compared to the second quarter fiscal 2013 adjusted consolidated net
income of $3.7 million or $0.07 per diluted share.
For
the first six months of fiscal 2014, consolidated net sales were $733.9
million, a decrease of $14.2 million or 1.9% when compared to the same period a
year ago. The consolidated net loss for the first six months of fiscal 2014 was
$18.6 million or $0.41 per diluted share. The consolidated net loss for the
first six months of fiscal 2013 was $17.2 million or $0.37 per diluted share.
Included
in the consolidated net loss for the first six months of fiscal 2014 were pre-tax
charges of $5.9 million ($4.4 million after tax or $0.10 per diluted share)
related to the restructuring actions. Included in the consolidated net loss for
the first six months of fiscal 2013 were pre-tax charges of $11.8 million ($7.6
million after tax or $0.16 per diluted share) related to the restructuring
actions. After considering the impact of the restructuring charges, the
adjusted consolidated net loss for the first six months of fiscal 2014 was
$14.2 million or $0.31 per diluted share, which was an increase of $4.7 million
or $0.10 per diluted share compared to the first six months of fiscal 2013
consolidated net loss of $9.5 million or $0.21 per diluted share.
Engines
Segment
Engines
Segment fiscal 2014 second quarter net sales were $265.7 million, which was
$8.5 million or 3.1% lower than the second quarter of fiscal 2013. This
decrease in net sales was due to lower sales of engines used in generators due
to the lack of storm activity during the quarter. Fiscal 2013 second quarter
net sales benefited from the impact of Hurricane Sandy. The decrease was
partially offset by higher North American sales of engines used on lawn and
garden equipment and related service parts due to OEM's building lawn and
garden inventory for the upcoming lawn and garden season.
The
Engines Segment adjusted gross profit percentage for the second quarter of 2014
was 21.0%, which was slightly higher compared to the second quarter of fiscal
2013. The increase was related to a favorable impact of 0.6% from sales mix of
higher margin service parts and margin contributed from the Branco acquisition
which closed late in the second quarter of fiscal 2013. Partially offsetting
the increase was a 0.5% unfavorable impact from foreign exchange primarily
related to the Australian Dollar. Manufacturing throughput decreased in the
second quarter of 2014 by 9%; however, production mix was favorable as
proportionately more large engines were built.
The
Engines Segment engineering, selling, general and administrative expenses were
$45.6 million in the second quarter of fiscal 2014, an increase of $1.7 million
from the second quarter of fiscal 2013. The increase was primarily due to increased
compensation costs and the added expenses related to Branco, partially offset
by lower retirement plan expenses of $0.8 million.
Engines
Segment net sales for the first six months of fiscal 2014 were $449.5 million,
which was $10.8 million or 2.5% higher than the same period a year ago. The
increase was primarily driven by higher North American sales of engines used on
lawn and garden equipment and related service parts due to strong demand
stemming from late season growing conditions as well as the anticipated
increased retail demand for the upcoming lawn and garden season. The increase
was partially offset by lower sales of engines used in generators due to the
lack of storm activity during the first six months of fiscal 2014. Hurricanes
Isaac and Sandy occurred during the first six months of fiscal 2013.
The
Engines Segment adjusted gross profit percentage for the first six months of
2014 was 18.4%, which was 0.5% lower compared to the first six months of fiscal
2013. The decrease was due to the unfavorable impact of 1.1% due to a 12%
reduction in manufacturing throughput and 0.4% attributable to unfavorable
foreign exchange. The decrease was partially offset by 1.0% from favorable
sales mix of higher margin service parts and the margin contributed by Branco.
The
Engines Segment engineering, selling, general and administrative expenses were
$88.9 million in the first six months of fiscal 2014, an increase of $2.8
million. The increase is primarily due to increased compensation costs and the
added expenses related to Branco partially offset by lower retirement plan
expenses of $2.4 million.
Products
Segment
Products
Segment fiscal 2014 second quarter net sales were $171.5 million, a decrease of
$26.0 million or 13.2% from the second quarter of fiscal 2013. The decrease in
net sales was driven by lower net sales of standby and portable generators due
to no landed hurricanes in the second quarter of fiscal 2014 and unfavorable
foreign exchange predominantly related to the Australian Dollar and the
Brazilian Real. Hurricane Sandy occurred in the second quarter of fiscal 2013
and no significant storms occurred in fiscal 2014. This decrease was partially
offset by favorable late season growing conditions during the second quarter of
fiscal 2014 that led to higher net sales of lawn and garden equipment through
our North American dealer channel as well as higher sales of pressure washers
and service parts. Net sales also benefited from the Branco acquisition.
The
Products Segment adjusted gross profit percentage for the second quarter of
2014 was 13.0%, which was 2.4% higher than the adjusted gross profit percentage
for the second quarter of fiscal 2013. The increase was primarily related to a
favorable mix of products sold in the second quarter of fiscal 2014 with the
additional margin from Branco and an increase in net sales of lawn and garden
equipment through the North America dealer channel. The adjusted gross profit percentage also
benefited by 0.7% due to improved manufacturing efficiencies and incremental
footprint restructuring savings of $0.3 million. Partially offsetting the
increase was a 1.0% unfavorable impact from foreign exchange.
The
Products Segment fiscal 2014 second quarter engineering, selling, general and
administrative expenses were $26.2 million, an increase of $0.8 million from
the second quarter of fiscal 2013. The increase was mainly attributable to the
additional expenses from Branco and higher compensation costs partially offset
by lower marketing spend and favorable foreign exchange.
Products
Segment net sales for the first six months of fiscal 2014 were $324.6 million,
a decrease of $46.2 million or 12.5% from the same period a year ago. The
decrease in net sales was driven by lower sales of standby and portable
generators due to no landed hurricanes during the first six months of fiscal
2014 and unfavorable foreign exchange predominantly due to the Australian
Dollar and the Brazilian Real.
Hurricanes Isaac and Sandy occurred during the first six months of
fiscal 2013. This decrease was partially offset by favorable late season
growing conditions during the first six months of fiscal 2014 that led to
higher sales of lawn and garden equipment through our North American dealer
channel as well as higher sales of pressure washers and service parts. Net
sales also benefited from the Branco acquisition.
The
Products Segment adjusted gross profit percentage for the first six months of
2014 was 12.9%, which was 1.1% higher compared to the first six months of
fiscal 2013. The increase was primarily related to a 0.8% benefit from improved
manufacturing efficiencies and incremental footprint restructuring savings of
$0.8 million. The adjusted gross profit percentage also benefited from a
favorable mix of products sold in the first six months of fiscal 2014 with the
additional margin from Branco and an increase in net sales through the North
America dealer channel. Partially offsetting the increase was a 0.4%
unfavorable impact from foreign exchange.
The
Products Segment engineering, selling, general and administrative expenses were
$51.7 million in the first six months of fiscal 2014, an increase of $2.9
million from the first six months of fiscal 2013. The increase was mainly
attributable to the additional expenses from Branco and higher compensation
costs, partially offset by lower marketing spend and favorable foreign
exchange.
Corporate
Items:
Interest
expense for the second quarter and first six months of fiscal 2014 was
comparable to the same periods a year ago.
The
effective tax rate for the second quarter and first six months of fiscal 2014
were 69.8% and 25.5%, respectively, compared to 156.5% and 27.8% for the same
respective periods of fiscal 2013. The tax rate for the second quarter and
first six months of fiscal 2014 was primarily driven by net operating losses of
certain foreign subsidiaries without a realizable tax benefit. The second
quarter and first six months of fiscal 2013 included a tax expense of $1.0
million primarily driven by nondeductible acquisition costs and net operating
losses of certain foreign subsidiaries without a realizable tax benefit.
Financial
Position:
Net
debt at December 29, 2013 was $126.8 million (total debt of $225.0 million less
$98.2 million of cash), or $101.8 million lower from the $228.7 million (total
debt of $246.9 million less $18.2 million of cash) at December 30, 2012. Cash
flows used in operating activities for the first six months of fiscal 2014 were
$45.2 million compared to $75.4 million in fiscal 2013. The improvement in
operating cash flows was primarily related to changes in working capital needs
in fiscal 2014 associated with lower seasonal growth in accounts receivable and
inventory due to lower production levels and planned inventory reductions. In
addition, no contributions to the pension plan were made in fiscal 2014
compared to $16.2 million in the first half of fiscal 2013.
Restructuring:
The
previously announced restructuring actions remain on schedule. Production of
horizontal shaft engines was concluded at the Auburn, Alabama plant during the
second quarter of 2014. As noted previously, pre-tax restructuring costs for
the second quarter and first six months of fiscal 2014 were $2.3 million and
$5.9 million, respectively. Pre-tax restructuring cost estimates for fiscal
2014 remain unchanged at $6 million to $8 million. Incremental restructuring
savings for fiscal 2014 are expected to be $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 six months of
fiscal 2014, the Company repurchased 1,066,447 shares on the open market at an
average price of $19.77 per share.
Outlook:
For
fiscal 2014, the Company has revised its full year guidance to exclude the
potential positive benefit of landed hurricanes from the upper end of the revenue
and earnings guidance. In addition, the lower end of the guidance has been
reduced to give effect to approximately $3.0 million of negative foreign
currency fluctuations and the lack of European snow sales that are not likely
to be recovered in the second half of the fiscal year.
The
Company now expects net income to be in a range of $48 million to $57 million
or $1.00 to $1.18 per diluted share prior to the impact of any additional share
repurchases and costs related to our announced restructuring actions. Our
fiscal 2014 consolidated net sales are projected to be in a range of $1.88
billion to $2.0 billion.
We
continue to estimate that the retail market for lawn and garden products will
increase 4-6% in the U.S. next season. The estimated incremental impact of
exiting the sale of lawn and garden equipment through national mass retailers
is approximately $10 million to $15 million of reduced sales in fiscal 2014. In
addition, sales in fiscal 2013 were favorably impacted by sales of portable and
standby generators in response to power outages during Hurricanes Isaac and
Sandy.
The
upper end of our earnings projections contemplates a higher market recovery in
excess of 10% for the U.S. lawn and garden market. Operating income margins are
expected to improve over fiscal 2013 and be in a range of 4.5% to 4.8% and
reflect the positive impacts of the restructuring actions. Interest expense and
other income are estimated to be approximately $18 million and $5 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 $50 million to
$55 million.
