Briggs & Stratton Corporation has announced financial results for its second fiscal quarter ended December 27, 2015.
Highlights:
- Second quarter fiscal 2016 consolidated net sales were $413 million, a decrease of $31 million or 7.0% compared to the prior year. Net sales decreased $22 million or 5.0% before currency impacts.
- Second quarter fiscal 2016 consolidated adjusted net income improved to $15.1 million compared to the adjusted net income of $11.9 million in the second quarter of fiscal 2015. Second quarter fiscal 2016 consolidated net income was $12.6 million compared to the net income of $6.9 million in the second quarter of fiscal 2015.
- Second quarter fiscal 2016 adjusted diluted earnings per share was $0.34, an improvement compared to the adjusted diluted earnings per share of $0.26 last year. Second quarter fiscal 2016 diluted earnings per share was $0.28 compared to the diluted earnings per share of $0.15 last year.
"We are pleased to report improved quarterly results with continued margin improvements in both our engines and products businesses. These improvements reflect our focus on selling higher margin products, as well as our focus on improving our operations," comments Todd J. Teske, Chairman, President and Chief Executive Officer of Briggs & Stratton Corporation. Teske continues, "We expect modest industry growth in the upcoming season here in the U.S. and we maintain some caution regarding the global economy. Looking forward to the upcoming U.S. lawn & garden season, we have gained additional placement of our engines on lawn and garden products as compared to our placement last year. In addition to introducing new products to the market this spring, we will be expanding our offering of new products that we have launched over the past several years to give consumers and commercial users around the world greater access to this innovation."
Consolidated Results:
Consolidated net sales for the second quarter of fiscal 2016 were $413 million, a decrease of $31 million or 7.0% from the second quarter of fiscal 2015. Net sales decreased during the quarter partially due to an unfavorable foreign currency impact, net of price increases of $8.8 million predominately related to the weakening of the Euro, Australian Dollar and Brazilian Real. Excluding currency impacts, net sales decreased by $22 million. The decrease in net sales was primarily a result of lower sales of job site products, the timing of pressure washer shipments, and lower sales of standby generators, as well as lower shipments in certain international regions. Partially offsetting this decrease were increased shipments of engines to customers in North America and higher sales of commercial lawn and garden products in North America. The second quarter fiscal 2016 consolidated net income and diluted earnings per share, which includes restructuring charges, litigation charges and the reinstatement of a deferred tax asset, were $12.6 million and $0.28, respectively, compared to a net income of $6.9 million and diluted earnings per share of $0.15 in the second quarter of fiscal 2015. The second quarter fiscal 2016 adjusted consolidated net income was $15.1 million or $0.34 per diluted share as compared to adjusted consolidated net income of $11.9 million or $0.26 per diluted share in the second quarter of fiscal 2015.
Consolidated net sales for the first 6 months of fiscal 2016 were $703 million, a decrease of $34.1 million or 4.6% from the first 6 months of fiscal 2015. Net sales decreased during the first 6 months of fiscal year 2016 partially due to an unfavorable foreign currency impact, net of price increases of $17.6 million predominately related to the weakening of the Euro, Australian Dollar and Brazilian Real. Excluding currency impacts, net sales decreased by $16.5 million. The decrease in net sales was primarily from lower sales of job site products, the timing of pressure washer shipments, and lower shipments to certain international regions. Partially offsetting this decrease were sales from Billy Goat, which was acquired in May 2015, higher shipments of small engines used on walk mowers, and increased sales of commercial lawn and garden products. The fiscal 2016 6 months consolidated net loss, which includes restructuring charges, acquisition-related charges, litigation charges, and the reinstatement of a deferred tax asset, was $5.6 million or $0.13 per diluted share. The first 6 months of fiscal 2015 consolidated net loss, which included restructuring charges and acquisition-related charges, was $8.3 million or $0.19 per diluted share. The first 6 months of fiscal 2016 adjusted consolidated net loss was $0.1 million or $0.01 per diluted share as compared to adjusted consolidated net income of $2.6 million or $0.05 per diluted share in the first 6 months of fiscal 2015.
Engines Segment:
Net sales in the second quarter of fiscal 2016 decreased $10 million or 3.6% from the prior year. Unfavorable foreign currency, net of offsetting price increases, negatively impacted net sales by approximately $2.1 million, largely due to the weakening of the Euro. Total engine volumes shipped in the quarter decreased by 0.8% or approximately 15,000 engines, mainly attributable to lower shipments into Europe and Asia as OEMs have delayed orders and are expected to produce closer to the season due to caution over the global economy, including the strength of the U.S. dollar. Shipments of small engines to North American customers increased in the quarter due to more normal pacing of walk mower production following the improved lawn and garden season. In fiscal 2015 walk mower production was delayed given elevated channel inventory coming out of the previous season.
Adjusted segment income in the second quarter of fiscal 2016 increased by $3.9 million from the prior year. The adjusted gross profit percentage was 25.1% in the second quarter of fiscal 2016, an increase of 200 basis points from the prior year. Expanded margins on new products, manufacturing efficiency improvements and slightly lower material costs contributed to the higher gross profit percentage compared to the second quarter of fiscal 2015. Manufacturing volume was consistent year over year during the second quarter. The impact of unfavorable foreign currency was largely offset by price increases.
Adjusted engineering, selling, general and administrative expenses for the second quarter of fiscal 2016 decreased $0.9 million largely due to the benefit of the movement in foreign currency rates, partially offset by higher costs related to pension expense.
Products Segment:
Net sales in the second quarter of fiscal 2016 decreased $27 million or 13.3% from the prior year. Unfavorable foreign currency, net of offsetting price increases, negatively impacted net sales by approximately $6.7 million, primarily related to the Australian Dollar and Brazilian Real. Excluding currency impacts, net sales decreased by$19.9 million, primarily from lower sales of job site products, pressure washers, standby generators and snow throwers. Partially offsetting this decrease were increased sales of high-end residential and commercial lawn and garden equipment through our North American dealer channel and the Billy Goat acquisition.
Adjusted segment income in the second quarter of fiscal 2016 decreased by $0.3 million from the prior year. The adjusted gross profit percentage of 17.0% in the second quarter of fiscal 2016 increased 90 basis points year over year. Adjusted gross margins improved due to manufacturing efficiencies, including $2.0 million of incremental savings realized from the previously announced restructuring actions. Partially offsetting the higher gross profit margins was lower manufacturing volume, which reduced adjusted gross profit margins by 80 basis points. Manufacturing throughput decreased 13% during the second quarter of fiscal 2016 as production had been elevated in the second quarter of last year to pre-build products to support the closure of the McDonough plant. Unfavorable foreign currency, net of offsetting price increases, negatively impacted gross profit percentage by 50 basis points, largely due to the weakening of the Australian Dollar and Brazilian Real.
Adjusted engineering, selling, general and administrative expenses in the second quarter of fiscal 2016 decreased $2.3 million from the prior year, primarily due to the benefit of the movement in foreign currency rates, partially offset by the Billy Goat acquisition.
Corporate Items:
The effective tax rates for the second quarter and first six months of fiscal 2016 were 22.2% and 45.4% respectively, compared to 33.7% and 45.8% for the same respective periods last year. The tax rates for the second quarter and first six months of fiscal 2016 and 2015 were primarily impacted by the re-enactment of the U.S. research and development tax credit and losses incurred at certain foreign subsidiaries for which the company has not recorded benefits. In addition, the tax rate for the second quarter of fiscal 2016 was impacted by foreign earnings in jurisdictions with tax rates that vary from the U.S. statutory rate.
Financial Position:
Net debt at December 27, 2015 was $257.8 million (total debt of $318.2 million less $60.4 million of cash), or$2.4 million lower than the $260.3 million (total debt of $312.0 million less $51.7 million of cash) at December 28, 2014. Cash flows used in operating activities for fiscal 2016 were $98.6 million compared to $114.0 millionin fiscal 2015. The decrease in operating cash flows used was primarily related to changes in working capital, primarily lower inventory levels. Inventory levels were elevated last year in the second quarter to support the McDonough plant closure.
Restructuring:
During the second quarter of fiscal 2016, the company made progress 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. Products segment pre-tax restructuring costs for the second quarter and first 6 months of fiscal 2016 were $3.0 million and $5.0 million, respectively. Pre-tax restructuring cost estimates for the Products segment for fiscal 2016 are $6 million to $8 million. Incremental pre-tax savings related to the Products segment restructuring actions during the second quarter of fiscal 2016 were $2.0 million. Incremental cost savings as a result of Products segment restructuring actions are anticipated to be $5 million to $7 million in fiscal 2016. Engines segment restructuring actions implemented and completed in the first quarter of fiscal 2016 resulted in pre-tax restructuring costs of $1.4 million.
Share Repurchase Program:
On August 13, 2014, the Board of Directors authorized up to $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 6 months of fiscal 2016, the company repurchased approximately 1,344,000 shares on the open market at an average price of $18.53 per share. As of December 27, 2015, the company has remaining authorization to repurchase up to approximately$15 million of common stock with an expiration date of June 30, 2016.
Outlook:
Given the first half operating performance, we are increasing our earnings guidance for fiscal 2016. We now estimate fiscal 2016 net income to be in a range of $56 million to $63 million or $1.25 to $1.41 per diluted share, up from previous guidance of $54 million to $61 million or $1.20 to $1.36 per diluted share; prior to the impact of any restructuring actions or additional share repurchases. Operating margins are estimated to be 5.0% to 5.3%. Compared to last year, operating margins are expected to be slightly improved as product margin expansion and manufacturing efficiency improvements are tempered by some economic instability overseas, including the impacts of a stronger U.S. dollar.
The company continues to anticipate net sales for fiscal 2016 to be in a range of $1.90 billion to $1.96 billion. This sales range contemplates modest organic growth with our expectations of the U.S. market to improve by 1-3% for the next season. Acquisitions completed in fiscal 2015 are expected to add up to 2% to net sales. Offsetting organic and acquisition growth are lower estimated sales of approximately 2% related to our reduction of the lower margin Snapper SKUs that were discontinued as part of the restructuring program and unfavorable net foreign currency impacts caused by a strong U.S. dollar.
Fiscal 2016 reflects an expected return to a more normalized tax rate in the range of 31-33%, which includes the benefit of recently passed tax legislation. Interest expense and other income is estimated to be $21 million and $8.5 million, respectively. Capital expenditures are estimated to be $65 million to $70 million.
