Briggs & Stratton Corporation Reports Fourth Quarter Results

MILWAUKEE, Aug. 17, 2016 /PRNewswire/ -- Briggs & Stratton Corporation (NYSE:BGG) today announced financial results for its fourth fiscal quarter ended July 3, 2016.

• Fourth quarter net sales were $502 million. Net sales decreased $32 million or 6.0% before currency impacts due to cooler than normal spring weather in North America and Europe.
• Fourth quarter net income was $5.3 million; adjusted net income was $20.1 million. Fourth quarter diluted earnings per share was $0.12; adjusted diluted earnings per share was $0.46.
• Fiscal 2016 net sales were $1.81 billion. Net sales decreased $65 million or 3.4% before currency impacts due to a $25 million reduction in job site products sales and lower sales caused by cool spring weather in North America and Europe as well as economic uncertainty in many international markets, including Europe.
• Fiscal 2016 net income was $26.6 million or $0.60 per diluted share; adjusted net income was $55.0 million or $1.25 per diluted share.
• Repurchased $37.4 million in shares under the share repurchase program and paid $23.6 million in dividends to shareholders during fiscal 2016.
• Announced a quarterly dividend increase of 4% to $0.14 per share; the third increase in three consecutive years.
• Fiscal 2017 revenues estimated to increase to a range of $1.84 billion to $1.89 billion.
• Fiscal 2017 earnings per share estimated to be $1.26 to $1.41, including $0.11 to $0.14 per share relating to additional investments to upgrade our ERP system and our commercial mowing capacity expansion. Also, includes additional pension expense and negative foreign currency for a combined impact of $0.09 per share as well as a higher income tax expense of approximately $0.08 per share as the income tax rate returns to normal levels.

"Our fiscal fourth quarter sales were impacted by cooler than normal temperatures in North America and Europe.  Industry shipments in April and May were down significantly when compared to last year as the cooler weather impacted retail sell through.  We believe that retail sell through has improved in the latter part of June and into July in both regions such that elevated channel inventories at the end of our fiscal year are reducing to more normal levels," commented Todd J. Teske, Chairman, President and Chief Executive Officer of Briggs & Stratton Corporation. "Compounding this was the impact of global economic uncertainty, which has challenged consumer confidence and made goods exported to international markets relatively more expensive also impacting demand. In the U.S., commercial lawn and garden continues to be a bright spot for our business."  Teske continued, "Our Ferris brand of commercial mowers and Billy Goat both achieved record sales and we grew our commercial engine sales as well.  Our team has delivered superior products during a time when higher-end residential and multi-family housing has experienced strong growth.  While we have observed slower growth of entry level housing to date, we have positioned ourselves well by delivering new and innovative products with features to attract new home buyers as they enter the market and to encourage existing home owners to replace their equipment to make work easier." 

Conference Call Information:

The Company will host a conference call tomorrow at 10:00 AM (ET) to review this information. A live webcast of the conference call will be available on our corporate website: http://investors.basco.com.

Also available is a dial-in number to access the call real-time at (866) 259-1024. A replay will be offered beginning approximately two hours after the call ends and will be available for one week. Dial (888) 266-2081 to access the replay. The pass code will be 1666202.

Non-GAAP Financial Measures

This release refers to non-GAAP financial measures including "adjusted gross profit", "adjusted engineering, selling, general, and administrative expenses", "adjusted segment income (loss)", "adjusted net income", and "adjusted diluted earnings per share."  Refer to the accompanying financial schedules for supplemental financial data and corresponding reconciliations of these non-GAAP financial measures to certain GAAP financial measures.

Safe Harbor Statement:

This release contains certain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. The words "anticipate", "believe", "estimate", "expect", "forecast", "intend", "plan", "project", and similar expressions are intended to identify forward-looking statements. The forward-looking statements are based on the Company's current views and assumptions and involve risks and uncertainties that include, among other things, the ability to successfully forecast demand for our products; changes in interest rates and foreign exchange rates; the effects of weather on the purchasing patterns of consumers and original equipment manufacturers (OEMs); actions of engine manufacturers and OEMs with whom we compete; changes in laws and regulations; changes in customer and OEM demand; changes in prices of raw materials and parts that we purchase; changes in domestic and foreign economic conditions (including effects from the U.K.'s decision to exit the European Union); the ability to bring new productive capacity on line efficiently and with good quality; outcomes of legal proceedings and claims; the ability to realize anticipated savings from restructuring actions; and other factors disclosed from time to time in our SEC filings or otherwise, including the factors discussed in Item 1A, Risk Factors, of the Company's Annual Report on Form 10-K and in its periodic reports on Form 10-Q. We undertake no obligation to update forward-looking statements made in this release to reflect events or circumstances after the date of this release.

About Briggs & Stratton Corporation:

Briggs & Stratton Corporation, headquartered in Milwaukee, Wisconsin, is the world's largest producer of gasoline engines for outdoor power equipment. Its wholly owned subsidiaries include North America's number one marketer of pressure washers, and it is a leading designer, manufacturer and marketer of power generation, lawn and garden, turf care and job site products through its Simplicity®, Snapper®, Snapper Pro®, Ferris®, PowerBoss®, Allmand™, Billy Goat®, Murray®, Branco® and Victa® brands. Briggs & Stratton products are designed, manufactured, marketed and serviced in over 100 countries on six continents.

Liquidity and Capital Resources:

Net debt at July 3, 2016 was $133.3 million (total debt, excluding debt issuance costs, of $223.1 million less $89.8 million of cash), or $26.7 million higher than the $106.6 million (total debt, excluding debt issuance costs, of $225.0 million less $118.4 million of cash) at June 28, 2015.

Cash flows provided by operating activities for fiscal 2016 were $111.8 million compared to $148.1 million in fiscal 2015. The decrease in operating cash flows was primarily related to lower net income and changes in working capital from higher inventory levels due to lower sales volume.

During fiscal 2016, the Company repurchased approximately 2,034,000 shares on the open market at an average price of $18.41 per share. As of July 3, 2016, the Company had remaining authorization to repurchase up to approximately $50 million of common stock with an expiration date of June 29, 2018.

SUPPLEMENTAL SEGMENT INFORMATION AND OUTLOOK

Engines Segment:

Fourth Quarter Highlights

• Engine volumes shipped decreased by 21% or approximately 535,000 engines. Cool spring weather in North America and Europe, combined with global economic uncertainty, led to lower demand for residential walk and riding mowers.
• Gross profit percentage decreased by 190 basis points. Adjusted gross profit percentage increased 170 basis points due to expanded margins on new products, manufacturing efficiency improvements and lower material costs, partially offset by the unfavorable 50 basis point impact of foreign currency net of offsetting price increases and 10% lower manufacturing volume.
• Equity in earnings of unconsolidated affiliates decreased by $1.8 million due to lower service parts shipments following the cool spring. This had an unfavorable impact on segment income percentage of 60 basis points.

Fiscal Year Summary

• Net sales decreased by $57.9 million or 4.8% before currency impacts, primarily due to lower shipments of engines into Europe and other international markets. Total engine unit shipments decreased by 7%, but reflected a favorable sales mix shift to large engines. Gross profit percentage decreased by 10 basis points. Adjusted gross profit percentage increased by 90 basis points due to expanded margins on new products, manufacturing efficiency improvements and lower material costs. Engineering, selling, general and administrative costs (ESG&A) increased $14.2 million. Adjusted ESG&A, which excludes pension settlement expense and litigation charges, increased by $2.2 million including $2.8 million related to our ERP upgrade. Equity in earnings of unconsolidated affiliates decreased by $3.3 million, which had an unfavorable impact on segment income percentage of 30 basis points.

Products Segment:

Fourth Quarter Highlights

• Net sales increased by $7.4 million before currency impacts, primarily due to increased shipments of high-end residential and commercial lawn and garden equipment through our North American dealer channel and the results of Billy Goat, which was acquired in May 2015.
• Gross profit percentage increased by 200 basis points. Adjusted gross profit percentage increased 140 basis points, primarily due to a favorable sales mix from our focus on selling higher margin lawn and garden equipment and the results of Billy Goat as well as lower material costs.
• ESG&A increased by $2.9 million primarily due to the Billy Goat acquisition and strategic initiatives, partially offset by the benefit of the movement in foreign currency rates.

Fiscal Year Summary

• Net sales decreased by $3.2 million or 0.4% before currency impacts, primarily due to a $25 million reduction in job site products sales, lower international sales and lower sales of pressure washers due to the cool spring weather. Increased sales of high-end residential and commercial lawn and garden mowers and the Billy Goat acquisition helped offset the decrease. Segment income percentage increased 150 basis points. Adjusted segment income percentage improved by 40 basis points due to favorable sales mix from our focus on selling higher margin lawn and garden equipment and the results of Billy Goat acquisition, higher margins from manufacturing efficiency improvements and lower material costs. Compared to last year, operating profit was $10.9 million lower due to weakness in job site product sales. We realized incremental restructuring savings of $6.2 million in fiscal 2016 as part of the efficiency improvements. ESG&A increased $1.4 million. Adjusted ESG&A increased by $2.1 million including $0.9 million related to our ERP upgrade.

Outlook:

For fiscal 2017, we anticipate net sales to be in a range of $1.84 billion to $1.89 billion.  This sales range contemplates our expectation that the U.S. residential lawn and garden market improves by 1% to 4% including expected improvements in the housing market and more seasonal spring weather in key markets. We expect that international regions will exhibit less growth than the U.S. in light of economic uncertainty. Sales of job site products are expected to modestly improve as channel inventories gradually subside. 

For fiscal 2017, we estimate net income to be in a range of $55 to $62 million or $1.26 to $1.41 per diluted share; prior to the impact of share repurchases. Operating margins are expected to be approximately 5.4% to 5.7%. Adjusted operating margins for fiscal 2016 were 5.0%, which included the equity in earnings of unconsolidated affiliates for the second half of the fiscal year (5.2% if equity in earnings of unconsolidated affiliates had been included for the full year). Compared to last year, operating margins are expected to improve due to product margin expansion, manufacturing cost reductions and higher equity in earnings of unconsolidated affiliates. Other income, which excludes equity in earnings of unconsolidated affiliates, is expected to be $2.5 million in fiscal 2017.

The improvement in operating margins is anticipated to be tempered by incremental pre-tax expenses of $7 million to $9 million ($0.11 to $0.14 per diluted share) for our ERP upgrade and commercial mowing capacity expansion projects. Higher pension costs and unfavorable foreign exchange impacts are expected of approximately $6 million pre-tax ($0.09 per diluted share). The effective tax rate is projected to return to a more normal rate to be in a range of 31% to 33% which represents an increased expense of $0.08 per diluted share compared to fiscal 2016. After factoring out the increased pension costs, unfavorable foreign exchange impacts, and the change in tax rate, the midpoint of our earnings range for fiscal 2017 contemplates over 20% growth in earnings compared with fiscal 2016 while funding important investments for our business. Capital expenditures are projected to be approximately $70 million to $75 million.

Non-GAAP Financial Measures

Briggs & Stratton Corporation prepares its financial statements using Generally Accepted Accounting Principles (GAAP). When a company discloses material information containing non-GAAP financial measures, SEC regulations require that the disclosure include a presentation of the most directly comparable GAAP measure and a reconciliation of the GAAP and non-GAAP financial measures. Management's inclusion of non-GAAP financial measures in this release is intended to supplement, not replace, the presentation of the financial results in accordance with GAAP. Briggs & Stratton Corporation management believes that these non-GAAP financial measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. Management also believes that these non-GAAP financial measures enhance the ability of investors to analyze our business trends and to understand our performance. In addition, we may utilize non-GAAP financial measures as a guide in our forecasting, budgeting and long-term planning process. Non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures presented in accordance with GAAP. The following tables are reconciliations of the non-GAAP financial measures:

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SOURCE Briggs & Stratton Corporation