Briggs & Stratton Reports Third Fiscal Quarter Results

For its third fiscal quarter, Briggs & Stratton had a 2.5% decrease in sales due to downturns in some markets, such as Oil & Gas, and a strong U.S. dollar impacting foreign exchange rates.

Vgcp 4c Light Bkd 10720192

Briggs & Stratton Corporation has announced financial results for its third fiscal quarter ended March 27, 2016.

Highlights:

  • Third quarter fiscal 2016 consolidated net sales were $604 million, a decrease of $15 million or 2.5% compared to the prior year. Net sales decreased $9 million or 1.4% before currency impacts.
  • Third quarter fiscal 2016 consolidated adjusted net income was $34.9 million compared to the adjusted net income of $39.2 million in the third quarter of fiscal 2015. Third quarter fiscal 2016 consolidated net income was $26.8 million compared to the net income of $33.9 million in the third quarter of fiscal 2015.
  • Third quarter fiscal 2016 adjusted diluted earnings per share was $0.80 compared to the adjusted diluted earnings per share of $0.86 last year. Third quarter fiscal 2016 diluted earnings per share was $0.61compared to the diluted earnings per share of $0.75 last year.
  • The company recorded a non-cash goodwill impairment charge of $7.7 million during the third quarter of fiscal 2016 within the Job Site reporting unit of its Products Segment.
  • The company reaffirms full year earnings guidance.
  • The Board of Directors authorized an additional $50 million in share repurchases.

"Our fiscal 2016 third quarter results were impacted by many economic factors. In the U.S., we continue to be encouraged by the housing recovery as well as some positive signs of regional early season demand for outdoor power equipment. Our Job Site business continues to be impacted by the downturn in U.S. oil production which is masking the improvements in other areas of our Products Segment. The first nine months year-over-year negative impact on pre-tax earnings of our Job Site business is $10 million, prior to the impact of the goodwill impairment charge. We have made solid progress in pivoting to the construction and rental markets; however, there continues to be elevated job site equipment in the channel. Internationally our sales were down by 16% in the quarter driven by a delayed start to the European lawn and garden market combined with continued global economic uncertainty and a stronger U.S. dollar," comments Todd J. Teske, Chairman, President and Chief Executive Officer of Briggs & Stratton Corporation. Teske continues, "Despite the headwinds, we continue to see improvement in our Products Segment as we focus more on commercial equipment and driving innovation throughout the segment. We also see solid performance from our Engines Segment as we continue to introduce engines with new, innovative features. We remain optimistic for the lawn and garden season and for the opportunity for more people to experience our innovative new products that make work easier."  

Consolidated Results

Consolidated net sales for the third quarter of fiscal 2016 were $604 million, a decrease of $15 million or 2.5% from the third quarter of fiscal 2015. Net sales decreased during the quarter partially due to an unfavorable foreign currency impact, net of price increases, of $6.5 million, predominately related to the weakening of the Euro, Australian Dollar and Brazilian Real. Excluding currency impacts, net sales decreased by $9 million. The decrease in net sales was primarily a result of lower shipments in international regions, particularly Europe, Australia and Brazil, as well as lower sales of job site products. Partially offsetting this decrease were increased shipments of engines to customers in North America, higher sales of commercial lawn and garden products in North America, and sales from Billy Goat, which was acquired in May 2015. The third quarter fiscal 2016 consolidated net income and diluted earnings per share, which includes restructuring charges and a goodwill impairment charge, were $26.8 million and $0.61, respectively, compared to net income of $33.9 million and diluted earnings per share of $0.75 in the third quarter of fiscal 2015. The third quarter fiscal 2016 adjusted consolidated net income was $34.9 million or $0.80 per diluted share as compared to adjusted consolidated net income of $39.2 million or $0.86 per diluted share in the third quarter of fiscal 2015.  

Consolidated net sales for the first nine months of fiscal 2016 were $1.31 billion, a decrease of $49 million or 3.6% from the first nine months of fiscal 2015. Net sales decreased during the first nine months of fiscal year 2016 partially due to an unfavorable foreign currency impact, net of price increases, of $21.4 million, predominately related to the weakening of the Euro, Australian Dollar and Brazilian Real. Excluding currency impacts, net sales decreased by $27.9 million. The decrease in net sales was primarily from lower shipments to international regions, and an approximately $20 million decrease in sales of job site products due to higher channel inventory. Partially offsetting this decrease were higher shipments of small engines used on walk mowers to North American customers, increased sales of commercial lawn and garden products, and sales from Billy Goat. Consolidated net income for the first nine months of fiscal 2016, which includes restructuring charges, goodwill impairment charge, acquisition-related charges, litigation charges, and the reinstatement of a deferred tax asset, was $21.2 million or $0.48 per diluted share. The first nine months of fiscal 2015 consolidated net income, which included restructuring charges and acquisition-related charges, was $25.6 million or $0.56 per diluted share. The first nine months of fiscal 2016 adjusted consolidated net income was $34.9 million or $0.79 per diluted share as compared to adjusted consolidated net income of $41.8 million or $0.91 per diluted share in the first nine months of fiscal 2015. 

Engines Segment

Net sales in the third quarter of fiscal 2016 decreased $17 million or 3.8% from the prior year. Unfavorable foreign currency, net of offsetting price increases, negatively impacted net sales by approximately $3.4 million, largely due to the weakening of the Euro. Total engine volumes shipped in the quarter decreased by 3.8% or approximately 120,000 engines, mainly attributable to lower shipments into Europe and Asia as OEMs have ordered less 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 timing of pressure washer production as well as continued strength in walk mower engine shipments. In fiscal 2015, pressure washer production was accelerated earlier in the year to build inventory in advance of the McDonough closure.

Segment income in the third quarter of fiscal 2016 decreased by $2.8 million from the prior year. The gross profit percentage was 23.9% in the third quarter of fiscal 2016, an increase of 100 basis points from the prior year. Expanded margins on new products, manufacturing efficiency improvements and lower material costs contributed to the higher gross profit percentage compared to the third quarter of fiscal 2015. Manufacturing volume was consistent year over year during the third quarter. Partially offsetting the higher gross profit percentage was a 40 basis point unfavorable impact from foreign currency, net of offsetting price increases.

Engineering, selling, general and administrative expenses for the third quarter of fiscal 2016 increased $2.4 million largely due to strategic initiatives and higher costs related to pension expense, partially offset by the benefit of the movement in foreign currency rates.

Products Segment

Net sales in the third quarter of fiscal 2016 increased $10 million or 4.6% from the prior year. Unfavorable foreign currency, net of offsetting price increases, negatively impacted net sales by approximately $3.2 million, primarily related to the Australian Dollar and Brazilian Real. Excluding currency impacts, net sales increased by $12.9 million, primarily from increased sales of high-end residential and commercial lawn and garden equipment through our North American dealer channel and the Billy Goat acquisition. Partially offsetting this increase were lower international sales, primarily in Australia, lower sales of job site products due to high channel inventories and lower sales related to the previously announced strategic decision to exit the sale of lower margin Snapper products.

Adjusted segment income in the third quarter of fiscal 2016 increased by $1.1 million from the prior year. The adjusted gross profit percentage of 12.7% in the third quarter of fiscal 2016 decreased 10 basis points year over year. Adjusted gross margins decreased due to lower manufacturing volume related to job site products and standby generators. Unfavorable foreign currency, net of offsetting price increases, also negatively impacted gross profit percentage by 30 basis points. Partially offsetting the lower gross profit percentage was incremental savings of $2.0 million realized from the previously announced restructuring actions and a favorable sales mix, which improved adjusted gross margins by approximately 90 basis points and was driven by our focus on selling higher margin lawn and garden equipment and the results from last year's Billy Goat acquisition.

Adjusted engineering, selling, general and administrative expenses in the third quarter of fiscal 2016 increased $0.3 million from the prior year, primarily due to the Billy Goat acquisition, partially offset by the benefit of the movement in foreign currency rates.

During the third quarter of 2016, the company recognized a non-cash goodwill impairment charge of $7.7 million within its Job Site reporting unit. The Job Site reporting unit, which is included in the Products Segment, designs, manufactures and sells portable light towers and heaters under the Allmand brand. 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.

Corporate Items

The effective tax rates for the third quarter and first nine months of fiscal 2016 were 33.0% and 28.7% respectively, compared to 20.2% and 5.7% for the same respective periods last year. The tax rates for the third quarter and first nine months of fiscal 2016 were impacted by non-deductible goodwill impairment. The tax rates for the third quarter and first nine months of fiscal 2016 and 2015 were impacted by the U.S. research and development tax credit and foreign earnings in jurisdictions with tax rates that vary from the U.S. statutory rate. The tax rate for the first nine months of 2015 was additionally impacted by the reversal of previously recorded reserves as a result of the effective settlement of the company's IRS audit.

Financial Position

Net debt at March 27, 2016 was $211.9 million (total debt of $255.6 million less $43.7 million of cash), or $23.5 million lower than the $235.4 million (total debt of $285.1 million less $49.7 million of cash) at March 29, 2015. Cash flows used in operating activities for fiscal 2016 were $5.4 million compared to $52.1 million in fiscal 2015. The improvement in operating cash flows used was primarily related to changes in working capital due to lower inventory levels and accounts receivable. Inventory levels were elevated last year in the third quarter to support the McDonough plant closure and the introduction of a new engine line. Cash flows used in investing activities for fiscal 2016 were $63.0 million compared to $103.9 million in fiscal 2015. The decrease in cash used in investing activities was primarily related to $19.1 million of cash paid for investment in Power Distributors, an unconsolidated affiliate, in fiscal 2016, as compared to $59.9 million of cash paid for the Allmand acquisition in fiscal 2015.

Restructuring

During the third quarter of fiscal 2016, the company continued 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 third quarter and first nine months of fiscal 2016 were $0.7 million and $5.8 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 third quarter of fiscal 2016 were $2.0 million. Incremental cost savings as a result of Products Segment restructuring actions are anticipated to be $6 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 with an expiration date of June 30, 2016. As of March 27, 2016, the company had remaining authorization to repurchase up to approximately $7 million of common stock under this authorization. On April 21, 2016, the Board of Directors authorized up to an additional $50 million in funds for use in the common share repurchase program with an expiration date of June 29, 2018. 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 nine months of fiscal 2016, the company repurchased approximately 1,841,000 shares on the open market at an average price of $18.14 per share.

Outlook

For fiscal 2016, the company continues to expect that adjusted consolidated net income will be in a range of $56 million to $63 million or $1.25 to $1.41 per diluted share; prior to the impact of any previously recognized adjustments, additional restructuring actions or share repurchases. Operating margins, which now include equity in earnings of unconsolidated affiliates for the second half of fiscal 2016, are expected to be approximately 5.1-5.3%. Operating margins for fiscal 2015 were 5.2% including the equity in earnings of unconsolidated affiliates for the second half of the fiscal year. Compared to last year, operating margins are expected to be consistent as product margin expansion and manufacturing cost reductions are tempered by reduced international sales, including the impacts of a stronger U.S. dollar, and reduced plant utilization in response to lower sales, particularly within the job site products business.

Due to weakness in consumer spending for outdoor power equipment in international markets and reduced demand for job site products due to elevated channel inventories, Briggs & Stratton is revising its fiscal 2016 consolidated net sales to be in a range of $1.85 billion to $1.92 billion, down from previous guidance of $1.90 billion to $1.96 billion. It continues to estimate that the retail market for U.S. lawn and garden products will increase an estimated 1-3% this season, reflecting a gradual improvement in the housing market. The lower end of its range includes the possibility that sales of lawn and garden products shift to later in the season due to retail sales patterns, retailer reorders, and OEM production schedules. Acquisitions completed in fiscal 2015 are expected to add approximately 1.5% to net sales reflecting reduced job site products sales. Offsetting the U.S. lawn and garden organic growth and acquisition growth are lower estimated sales of approximately 2% related to a 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.

Interest expense is estimated to be approximately $21 million. Other income, which excludes equity in earnings of unconsolidated affiliates for the second half of fiscal 2016, is expected to be $5.5 million. The company estimates that approximately $3.0 million of equity in earnings of unconsolidated affiliates will shift to income from operations due to the reporting change implemented in the third quarter of fiscal 2016.  The effective tax rate excluding restructuring charges is projected to be in a range of 29-31% and capital expenditures are projected to be approximately $65 million to $70 million.

Latest