Briggs & Stratton Corporation announces financial results for its fourth fiscal quarter and fiscal year ended June 28, 2015.
Highlights:
- Fourth quarter fiscal 2015 consolidated net sales were $539 million, an increase of $42 million or 8.5% compared to the prior year. Net sales increased $51.5 million or 10.4% before currency impacts
- Fourth quarter fiscal 2015 consolidated adjusted net income was $23.0 million, a 58% improvement from the adjusted net income of $14.6 million in the fourth quarter of fiscal 2014
- Fourth quarter fiscal 2015 adjusted diluted earnings per share was $0.51, a 65% improvement from the adjusted diluted earnings per share of $0.31 last year
- Fiscal 2015 net sales increased by $36 million or 1.9% compared to last year. Net sales increased $65 million or 3.5% before currency impacts
- Fiscal 2015 adjusted net income increased 66% to $64.8 million, or $1.42 per diluted share, from last year's adjusted net income of $39.0 million or $0.82 per diluted share
"Sales and earnings significantly improved this year as we saw continued improvement in our key markets, a more normal start to the spring lawn and garden season, and solid execution of our strategy by our team," comments Todd J. Teske, Chairman, President and Chief Executive Officer of Briggs & Stratton Corporation. "The strong earnings improvement is due to executing our plan this year in a number of areas. We held or grew our engine market share. We expanded margins in both the engines and products businesses due to launching several new products, growing our portfolio of higher margin commercial products by completing two acquisitions in the job site and commercial turf categories, and executing on our cost reduction initiatives in the products business. These sales and profitability improvements were achieved despite significant foreign currency headwinds caused by a stronger U.S. dollar."
"Our balance sheet remains strong with additional improvements in working capital that we anticipated at the beginning of the year," adds David J. Rodgers, Senior Vice-President and Chief Financial Officer. "Our balance sheet, and a 17% increase in cash flows from operations enabled us to repurchase $47 million of our common shares during the year and announce an 8% increase in the dividend reflecting our continued confidence in the outlook for our business."
Consolidated Results:
Consolidated net sales for the fourth quarter of fiscal 2015 were $539 million, an increase of $42 million or 8.5% from the fourth quarter of fiscal 2014. Engine sales increased during the quarter primarily due to higher shipments to OEM customers in key markets on improved market conditions and share gains. Net sales also benefited from the results of the Allmand and Billy Goat acquisitions, which closed in August 2014 and May 2015, respectively, and higher sales of commercial lawn and garden equipment. The increase in net sales was partially offset by the strengthening of the U.S. dollar, predominantly against the Australian dollar, Brazilian real and Euro, which led to an unfavorable foreign currency impact on sales of $9.4 million. The fourth quarter of fiscal 2015 adjusted consolidated net income of $23.0 million or $0.51 per diluted share improved by $8.4 million or $0.20 per diluted share compared to the adjusted consolidated net income of the fourth quarter of fiscal 2014.
Consolidated net sales for fiscal 2015 were $1.89 billion. Consolidated net sales increased $65 million or 3.5% before the impact of unfavorable currency rates. Consolidated net sales increased $36 million or 1.9% from fiscal 2014, which includes $29 million related to unfavorable currency rates. The increase in net sales is due to the results from the Allmand and Billy Goat acquisitions, a 3% increase in global engine unit shipments and higher sales of commercial lawn and garden equipment and pressure washers in North America. Partially offsetting the increase were reduced sales of generators, unfavorable engine sales mix and the planned actions to narrow the assortment of lower-priced Snapper consumer lawn and garden equipment. Fiscal 2015 adjusted consolidated net income of $64.8 million or $1.42 per diluted share improved by $25.8 million or $0.60 per diluted share due to improved margins in the engines and products businesses due to cost reductions including restructuring plan savings, new product introductions with higher margins, and the impact of completing two acquisitions, partially offset by an unfavorable foreign currency impact of approximately $7.6 million.
Engines Segment:
Net sales in the fourth quarter of fiscal 2015 increased by $34 million or 10.7% from the prior year. Total engine volumes shipped in the quarter increased by 25.1% or approximately 500,000 engines, largely due to higher shipments of small engines used on walk mowers to OEM customers in key markets on improved market conditions this lawn and garden season. Partially offsetting the sales volume increase was the impact of an unfavorable sales mix as shipments of large engines for riding equipment decreased in the current year due to elevated channel inventories coming into the season that have been worked down during the year. In addition, unfavorable foreign currency negatively impacted net sales by approximately $6.6 million, largely due to the weakening of the Euro.
Adjusted segment income in the fourth quarter of fiscal 2015 increased by $9.9 million from the prior year. The adjusted gross profit percentage was 22.2% in the fourth quarter of fiscal 2015, consistent with the prior year. The previously announced retirement plan changes improved adjusted gross profit margins by approximately 90 basis points. Mostly offsetting this improvement was the impact of unfavorable foreign currency rates, primarily related to the Euro, which reduced adjusted gross profit margins by approximately 80 basis points. The benefit of lower material costs was largely offset by unfavorable absorption of fixed manufacturing costs due to reduced production of large engines.
Engineering, selling, general and administrative expenses for the fourth quarter of fiscal 2015 decreased $2.4 million largely due to the retirement plan changes. Higher compensation expense in fiscal 2015 was offset by the benefit of the movement in foreign currency rates.
Fiscal 2015 net sales decreased by $11 million reflecting an unfavorable foreign currency impact of approximately $15.3 million, an approximate 3% increase in unit shipments of global engines and an unfavorable mix of engines sold. Fiscal 2015 sales skewed proportionately towards small engines due to elevated levels of large engines in the channel entering this lawn and garden season. Adjusted segment income increased by $12.1 million in fiscal 2015 due to increased engine shipments and retirement plan savings of $17.3 million. An unfavorable foreign currency impact of approximately $4.6 million and higher compensation expense partially offset the improvement in adjusted segment income.
Products Segment:
Net sales in the fourth quarter of fiscal 2015 increased by $6 million or 2.7% from the prior year. This increase was due to the results from the Allmand and Billy Goat acquisitions, higher commercial lawn and garden equipment sales, and higher pressure washer sales. In addition, the company's focus on selling higher margin lawn and garden equipment resulted in a favorable mix of products sold. Partially offsetting the increase was an unfavorable foreign currency impact of approximately $2.8 million, primarily related to the weakening of the Australian dollar and Brazilian real. Net sales also decreased due to the planned actions to narrow the assortment of lower priced Snapper consumer lawn and garden equipment and lower generator sales due to fewer major power outages.
Adjusted segment income in the fourth quarter of fiscal 2015 improved by $3.4 million from the prior year adjusted segment loss. The adjusted gross profit percentage of 13.4% in the fourth quarter of fiscal 2015 was an increase of 70 basis points year over year. Adjusted gross margins improved by 130 basis points due to increased manufacturing efficiencies, including $2.6 million of incremental savings realized from restructuring actions. Increased pricing and favorable sales mix improved adjusted gross margins by approximately 90 basis points. Partially offsetting the higher gross profit margins was a 7.4% reduction in manufacturing throughput during the fourth quarter of fiscal 2015, which led to a decrease in the adjusted gross profit percentage of approximately 130 basis points. Production had been accelerated into earlier quarters in fiscal 2015 to facilitate the closure of the McDonough, GA, plant. In addition, the strengthening of the U..S dollar resulted in a decrease to the adjusted gross profit percentage of approximately 20 basis points.
Adjusted engineering, selling, general and administrative expenses in the fourth quarter of fiscal 2015 decreased $0.7 million from the prior year largely due to $2.2 million in savings related to the restructuring actions and $0.8 related to foreign currency, partially offset by higher expenses due to the Allmand and Billy Goat acquisitions and increased compensation expense.
Fiscal 2015 net sales increased by $52 million, or 7.1%, including a $13.6 million unfavorable foreign currency impact. The increase is due to the results of the Allmand and Billy Goat acquisitions, higher commercial lawn and garden equipment sales, higher sales in Australia on an improved lawn and garden season and higher pressure washer sales. Partially offsetting the increase are reduced sales of generators due to fewer major power outages, and the planned actions to narrow the assortment of lower-priced Snapper consumer lawn and garden equipment. Adjusted segment income improved by $22.9 million in fiscal 2015. The improvement is due to restructuring savings of $10.0 million, the results of the acquisitions, a 13.0% increase in manufacturing throughput and favorable sales mix due to a focus on selling higher margin equipment. The improvement was partially offset by an unfavorable foreign currency impact of approximately $5.6 million and higher compensation expense.
Allmand Bros., Inc. and Billy Goat Industries, Inc. Acquisitions:
On August 29, 2014, the company completed the acquisition of Allmand Bros. Inc. for approximately $59.9 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 is included within the Products segment.
On May 20, 2015, the company acquired all of the outstanding shares of Billy Goat Industries Inc. for approximately $28.3 million, net of cash acquired, subject to customary post-closing working capital adjustments. Billy Goat is a leading manufacturer of specialty turf equipment, which includes aerators, sod cutters, overseeders, power rakes, brush cutters, walk behind blowers, lawn vacuums and debris loaders. Billy Goat is included within the Products segment.
Corporate Items:
The effective tax rates for the fourth quarter and year ended fiscal 2015 were 32.6% and 19.8%, respectively, compared to 14.8% and 23.7% for the same respective periods last year. The tax rate for the year ended fiscal 2015 was lower than statutory rates due to a net tax benefit of $5 million related to recognizing incremental federal research & development tax credits related to prior years. In addition, the year ended fiscal 2015 tax rate was impacted by the reversal of previously recorded reserves as a result of the favorable resolution of an IRS audit. The tax rate for the fourth quarter of fiscal 2014 was lower than the statutory rate due to the impact of foreign operations subject to lower statutory tax rates compared with the U.S. The year ended fiscal 2014 tax rate 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 June 28, 2015 was $106.6 million (total debt of $225.0 million less $118.4 million of cash), or $76.3 million higher than the $30.3 million (total debt of $225.0 million less $194.7 million of cash) at June 29, 2014. Cash flows provided by operating activities for fiscal 2015 were $148.1 million compared to $127.1 million in fiscal 2014. The increase in operating cash flows was primarily related to higher net income and improvements in working capital excluding the impact of acquisitions. In addition, the company paid cash of $88.1 million for the Allmand and Billy Goat acquisitions in fiscal 2015 compared to no acquisitions in fiscal 2014.
Restructuring:
During the fourth 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 ceased production at the McDonough, GA, plant during the fourth quarter of fiscal 2015 and has begun producing pressure washers and snow throwers at its Milwaukee, WI plant. Production of riding mowers at the Wisconsin plant will begin in the first half of fiscal 2016. Pre-tax restructuring costs for the fourth quarter and 12 months ended June 28, 2015 were $4.0 million and $27.3 million, respectively, and pre-tax savings were $4.8 million and $10.0 million, respectively. Incremental pre-tax restructuring costs in fiscal 2016 are expected to be $4 million to $8 million. Incremental cost savings as a result of these actions are anticipated to be approximately $5 million to $7 million 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 fiscal 2015, the company repurchased approximately 2.4 million shares on the open market at an average price of $19.42 per share. As of June 28, 2015, the company has remaining authorization to repurchase up to approximately $40 million of common stock with an expiration date of June 30, 2016.
Outlook:
For fiscal 2016, the company anticipates net sales to be in a range of $1.90 to $1.96 billion. This sales range contemplates modest organic growth with expectations of the U.S. and European markets to improve by 1 to 3% for the next season. Acquisitions completed in fiscal 2015 are expected to add 2% to net sales and reflects lower capital spending levels by oil and gas companies based on lower oil pricing compared with last year. Offsetting organic and acquisition growth are sales headwinds of approximately 2% related to a reduction of the lower margin Snapper SKUs that were sold down this season and unfavorable net foreign currency impacts related to a strong U.S. dollar relative to many of the currencies we sell in.
The company estimates fiscal 2016 net income to be in a range of $54 to $61 million or $1.20 to $1.36. The earnings for fiscal 2016 reflect a return to a more normalized tax rate in the range of 32 to 34% which represents a reduced benefit of approximately $0.14 per diluted share from fiscal 2015. In addition, unfavorable foreign currency impacts in fiscal 2016 are estimated at approximately $10 million pre-tax, or $0.15 per diluted share, net of the pricing and cost reduction actions we are taking in order offset the impact of currencies. Also in fiscal 2016, the company is required to adopt new mortality tables to value our pension liability that will increase pension expense by approximately $0.06 per diluted share. Offsetting these headwinds is organic and acquisition sales growth and the remaining benefit of the Products restructuring actions. After factoring out the tax benefit that will not re-occur, the foreign currency headwinds, and the required pension changes, the mid-point of our earnings range for fiscal 2016 contemplates approximately 20% growth in earnings compared with fiscal 2015.
