MILWAUKEE, Aug. 11, 2011 -- Briggs and Stratton Corporation today announced financial results for its fourth fiscal quarter and year ended July 3, 2011.
Highlights:
- Fiscal 2011 consolidated net sales were $2.1 billion, an increase of 4.0% from fiscal 2010. Fourth quarter fiscal 2011 consolidated net sales were $605.2 million, or 1.7% lower than the fourth quarter of fiscal 2010.
- Fiscal 2011 consolidated net income of $24.4 million declined by $12.3 million from fiscal 2010. Fourth quarter fiscal 2011 consolidated net loss of $17.8 million declined by $36.0 million from net income reported in the fourth quarter of fiscal 2010.
- The company recorded a non-cash goodwill impairment charge of $49.5 million during the fourth quarter of fiscal 2011 related to the Power Products segment.
- Adjusted consolidated net income for fiscal 2011 was $63.2 million, which was 14.4% higher than fiscal 2010 adjusted consolidated net income.
- Adjusted consolidated net income for the fourth quarter of fiscal 2011 was $16.5 million, which was lower by $1.7 million or 9.2% compared to fiscal 2010 consolidated net income.
- Board of Directors authorizes $50 million share repurchase program.
- Net debt decreased in fiscal 2011 by $71.5 million.
"We are pleased with our fiscal 2011 results when considering the significant challenges that have confronted the U.S. lawn and garden market," commented Todd J. Teske, Chairman, President and Chief Executive Officer of Briggs and Stratton. "Sales growth in our international markets continued through the fourth quarter of fiscal 2011. This diversification of our customer base helped us deliver 14.4% growth in adjusted consolidated net income in a year that the North American consumer lawn and garden market has declined double-digits." Teske continued, "The Board's authorization of a $50 million share repurchase program reflects continued confidence in our strategy, the long-term prospects of the business and our commitment to increase shareholder value. Our business continues to generate healthy cash flow, which allows us to opportunistically repurchase common shares while maintaining the flexibility to make strategic investments as we grow our business."
Consolidated Results:
Consolidated net sales for the fourth quarter of fiscal 2011 were $605.2 million, a decrease of $10.4 million or 1.7% when compared to the same period a year ago. The fiscal 2011 fourth quarter consolidated net loss was $17.8 million or $0.36 per diluted share. The fourth quarter of fiscal 2010 consolidated net income was $18.2 million or $0.36 per diluted share.
Included in consolidated net income for the fourth quarter of fiscal 2011 was a $49.5 million non-cash pre-tax charge associated with the impairment of Power Products segment goodwill ($34.3 million after tax or $0.68 per diluted share). After considering the impact of the non-cash goodwill impairment, adjusted consolidated net income for the fourth quarter of fiscal 2011 was $16.5 million or $0.32 per diluted share, which was lower by $1.7 million or $0.04 per diluted share compared to fiscal 2010 consolidated net income of $18.2 million or $0.36 per diluted share. The impairment charge is a non-cash expense that did not adversely affect the company's debt position, cash flow, liquidity or compliance with financial covenants under its credit facilities. No impairment charges were recorded within the Engines segment.
Consolidated net sales for fiscal 2011 were $2.1 billion, an increase of $82.1 million or 4.0% when compared to the same period a year ago. Fiscal 2011 consolidated net income was $24.4 million or $0.48 per diluted share. Fiscal 2010 consolidated net income was $36.6 million or $0.73 per diluted share.
Included in consolidated net income for fiscal 2011 was the aforementioned $49.5 million non-cash pre-tax charge associated with the impairment of Power Products segment goodwill ($34.3 million after tax or $0.68 per diluted share), 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 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 goodwill impairment, organization changes, debt redemption and litigation settlement, adjusted consolidated net income for fiscal 2011 was $63.2 million or $1.25 per diluted share, which was higher by $8.0 million or $0.15 per diluted share compared to fiscal 2010 adjusted consolidated net income of $55.3 million or $1.10 per diluted share.
| Engines Segment: | |||||||||
| Fourth Quarter | Twelve Months | ||||||||
| (Dollars in Thousands) | 2011 | 2010 | 2011 | 2010 | |||||
| Engines Income from Operations | $ 28,090 | $ 28,046 | $ 120,402 | $ 83,521 | |||||
| Organization Changes Charge | - | - | 559 | - | |||||
| Litigation Settlement | - | - | - | 30,600 | |||||
| Adjusted Engines Income from Operations | $ 28,090 | $ 28,046 | $ 120,961 | $ 114,121 | |||||
Engines Segment fiscal 2011 fourth quarter net sales were $392.3 million, which was $19.2 million or 4.7% lower than the same period a year ago. This decrease in net sales was driven by approximately 13% lower shipment volumes compared to last year, due to lower sales to domestic OEMs as a result of unfavorable weather conditions in North America that have hampered the lawn and garden selling season, offset by improved engine pricing, a favorable mix of product shipped that reflected proportionally larger volumes of units used on commercial and riding lawn and garden equipment, and the favorable impact of foreign currency.
The Engines Segment gross profit was $84.0 in the fourth quarter of fiscal 2011, a decrease of $3.9 million from the fourth quarter of fiscal 2010. Gross profit decreased primarily due to lower net sales, higher commodity costs and increased manufacturing wages and benefits including a $2.3 million increase in pension benefits expense, partially offset by lower manufacturing spending, improved absorption on 7.0% higher volume of units produced, improved engine pricing and a $2.7 million foreign currency benefit.
The Engines Segment engineering, selling, general and administrative expenses were $55.9 million in the fourth quarter of fiscal 2011, a decrease of $3.9 million from the fourth quarter of fiscal 2010. This reduction was primarily due to lower salaries expense partially offset by an increase in pension benefits expense of $1.9 million. Fiscal 2010 fourth quarter salaries expense included $1.5 million related to the restoration of temporary reductions in salaries and 401(k) match that were implemented in the first half of fiscal 2010.
Engines Segment net sales for fiscal 2011 were approximately $1.4 billion, which was $39.1 million or 2.9% higher than the same period a year ago despite a 2.1% decline in total unit shipment volumes. This increase from the same period last year was primarily due to higher international engine unit shipments, a favorable mix of product shipped that reflected proportionately larger volumes of units used on commercial applications, improved engine pricing and a $4.7 million foreign currency benefit, partially offset by reduced engine shipments primarily to customers in North America.
The Engines Segment gross profit was $319.6 million for fiscal 2011, an improvement of $19.3 million compared to fiscal 2010. This improvement was due to higher net sales, a favorable mix of products shipped, improved engine pricing, increased manufacturing efficiencies, a $5.4 million foreign currency benefit and increased absorption on 4.0% higher production volumes, partially offset by higher commodity costs and increased manufacturing wages and benefits, including a $9.6 million increase in pension benefits expense.
The Engines Segment engineering, selling, general and administrative expenses were $199.2 million in fiscal 2011, an increase of $13.1 million from fiscal 2010. The increase was due to higher international selling expenses and increased salaries and benefits, which include a $7.2 million increase in pension benefits expense.
| Power Products Segment: | |||||||||
| Fourth Quarter | Twelve Months | ||||||||
| (Dollars in Thousands) | 2011 | 2010 | 2011 | 2010 | |||||
| Power Products Income (Loss) from Operations | $ (55,974) | $ 908 | $ (73,512) | $ (7,707) | |||||
| Goodwill Impairment Charge | 49,450 | - | 49,450 | - | |||||
| Organization Changes Charge | - | - | 2,978 | - | |||||
| Adjusted Power Products Income (Loss) from Operations | $ (6,524) | $ 908 | $ (21,084) | $ (7,707) | |||||
Power Products Segment fiscal 2011 fourth quarter net sales were $257.5 million, consistent with net sales of the same period a year ago. Fourth quarter results were primarily impacted by increased sales in our Australian and European markets as well as a $2.6 million foreign currency benefit. In the North American market, reduced shipment volumes of pressure washers and lawn and garden equipment were partially offset by increased shipments of portable generators. Sales of portable generators were favorably impacted by storm activity in the southern U.S. during the fourth quarter of 2011.
The Power Products Segment gross profit was $22.2 million for the fourth quarter of fiscal 2011, a decrease of $6.6 million from the fourth quarter of fiscal 2010. The decrease over the prior year was primarily attributable to higher manufacturing spending and increased sales allowances offered to our customers, partially offset by a favorable mix of unit shipments of premium dealer lawn and garden products and a$2.2 million foreign currency benefit. The increased manufacturing spending was associated with rising commodity costs, increased warranty expense and increased freight expense.
The Power Products Segment fiscal 2011 fourth quarter engineering, selling, general and administrative expenses of $28.7 million increased by $0.8 million from the fiscal 2010 fourth quarter primarily due to higher international selling expenses.
Power Products Segment net sales for fiscal 2011 were $879.0 million, which was $35.3 million or 4.2% higher than the same period a year ago. This improvement was primarily due to increased sales in our Australian and European markets, partially offset by reduced unit shipment volumes of lawn and garden equipment, pressure washers and portable generators in the domestic market.
The Power Products Segment gross profit was $77.4 million for fiscal 2011, a decline of $9.0 million compared to fiscal 2010. The decline between years resulted from higher manufacturing spending and budget conscious customers purchasing lower margin units, partially offset by increased sales of premium dealer lawn and garden products, slightly increased pricing, and a $7.2 million foreign currency benefit. The increase in manufacturing spending relates to higher commodity costs, manufacturing inefficiencies in the first half of the fiscal year in launching new products and increased warranty, and increased freight expenses, partially offset by $8.0 million in incremental cost savings associated with the closure of our Jefferson, Wisconsin manufacturing facility in fiscal 2010.
The Power Products Segment fiscal 2011 engineering, selling, general and administrative expenses of $101.5 million increased by $7.3 million in fiscal 2011 primarily related to increased international selling expenses, $1.7 million of unfavorable foreign currency and previously announced organization change costs of $3.0 million.
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 fourth quarter of fiscal 2011 due to lower average outstanding borrowings and the reduced interest rate associated with the refinanced Senior Notes. Interest expense was lower for fiscal 2011 due to lower average outstanding borrowings and the reduced interest rate associated with the refinanced notes, 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 effective tax rate was 37.3% and 28.2% for the fourth quarter of fiscal 2011 and 2010, respectively. The effective tax rate was 24.0% and 25.4% for fiscal 2011 and fiscal 2010, respectively. The current year income tax benefit includes $15.1 million of income tax benefit related to the $49.5 million non-cash goodwill impairment charge. Approximately $10.6 million of the goodwill impairment was related to non-deductible goodwill associated with past stock acquisitions for which a tax benefit was not recorded. The remaining goodwill impairment generated the $15.1 million of tax benefit.
Due to the significant impact the impairment charge had on the effective tax rate, the Company believes the tax benefit and the effective tax rate excluding the $49.5 million impairment charge are more meaningful comparisons to last year's comparable period. Excluding the non-cash goodwill impairment charge, the effective tax rate was 21.5% and 28.2% for the fourth quarter of fiscal 2011 and 2010, respectively. The effective tax rate was 28.0% and 25.4% for fiscal 2011 and fiscal 2010, respectively. The quarterly and annual fluctuations reflect the impact of changes in foreign earnings at different tax rates, the taxation of dividends from foreign operations as well as the resolution of certain tax matters.
Financial Position:
Net debt at July 3,2011 was $18.4 million (total debt of $228.0 million less $209.6 million of cash), an improvement of $71.5 million from the $89.9 million (total debt of $206.5 million less $116.6 million of cash) at June 27, 2010. Cash provided by operating activities for fiscal 2011 was $163.7 million, or $80.0 million lower compared to $243.7 million in fiscal 2010. The decrease in cash provided by operating activities was 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.
Share Repurchase Program:
The Board of Directors of the company has authorized up to $50 million in funds for a common share repurchase program with an expiration of June 30, 2013. Share repurchases, among other things, allow the company to offset any potentially dilutive impacts of stock-based compensation. The company will repurchase shares of common stock, using available cash, on the open market or in private transactions from time to time, depending on market conditions and certain governing loan covenants.
Outlook:
For fiscal 2012, the company projects that consolidated net income will be in the range of $53 million to $63 million or $1.05 to $1.25 per diluted share prior to the impact of any potential share repurchases. Consolidated net sales are projected to be higher by approximately 2% to 4% depending on the level of recovery of consumer spending within the outdoor power equipment category.
Engines Segment sales are forecasted to be comparable to fiscal 2011 on lower volume and improved pricing while the Power Products Segment sales are forecasted higher primarily due to higher volumes of lawn and garden equipment and pressure washers.
Demand for portable generators and the related engines due to landed hurricane activity have not been included in our fiscal 2012 sales forecast. Operating income margins are projected to be in the range of 4.3% to 4.8%, and interest expense and other income are forecasted to be in the range of $18 million to $19 million and $5 million to $6 million, respectively.
The operating earnings forecast includes additional investments of approximately $12 million for continued international growth. The effective tax rate for the full year is projected to be in a range of 32% to 34%. Capital expenditures for the year are projected to be approximately $60 million to $65 million.
