Briggs & Stratton Corporation (NYSE: BGG) announced financial results for its second fiscal quarter ended December 30, 2018.
- Second fiscal quarter net sales were $505 million, an increase of $59 million, or 13.2%, from $446 million in the prior year.
- Continued favorable momentum in sales of engines and products designed for commercial markets led to growth of 18% on a trailing 12 month basis.
- Quarterly GAAP gross profit margin of 18.3% and adjusted gross profit margin of 18.6% decreased from a GAAP gross profit margin of 20.8% and adjusted gross profit margin of 21.1% last year primarily due to sales mix and lower production volumes.
- Second quarter GAAP net loss of $2.6 million, or $0.07 per share, included business optimization charges, premiums on the repurchase of senior notes, integration charges, and tax adjustments associated with the Tax Cut & Jobs Act (TCJA). Excluding these items, adjusted net income was $8.4 million, or $0.20 per diluted share, compared to $10.7 million, or $0.25 per diluted share, in the prior year.
- The company repurchased $6.3 million of common stock under the company’s share repurchase program during the second fiscal quarter of fiscal 2019.
- The company is revising its fiscal 2019 earnings outlook to $1.10 to $1.30 per diluted share, before business optimization costs and other charges, from previous guidance of $1.40 to $1.60 per diluted share. The revision reflects the weather-related market softness in Europe and Australia and the impact of the Sears bankruptcy.
“Robust sales in the second quarter, across both residential and commercial lines, enabled us to recapture much of the sales shortfall from earlier in the year and demonstrated the continued favorable momentum of our strategy to grow commercial sales,” said Todd J. Teske, chairman, president and chief executive officer. “We achieved higher sales despite significant headwinds from difficult weather-related market conditions in Europe and Australia and lower sales of aftermarket service parts from lower throughput at our distribution center hub.” Teske added, “During the second quarter, we made significant progress on our business optimization program, including improvements to return our parts business back to its historical high service levels. We are also pleased by the engine placement achieved for the upcoming lawn and garden season, and are encouraged by the enthusiasm surrounding new brand launches. Equally encouraging, activity remains high in commercial lines. With a broader range of innovative products and stronger distribution, we are serving more commercial applications than ever before. Business activity across all commercial lines – turf and landscape, engines, and job site – remains high, as professionals increasingly turn to Briggs for power to make them more productive on the job.”
Teske continued, “The market headwinds caused by the drought conditions in Australia and Europe as well as the Sears bankruptcy have resulted in a decrease to our fiscal 2019 outlook, but we expect much of these headwinds to ease by next season. Despite these near-term issues, the continued strong growth in commercial and high placement in residential demonstrate that our strategy has us on the right path to deliver long-term growth in sales and profitability as well as greater business diversification. By the end of fiscal 2019, we expect to have our business optimization initiative largely completed, which positions us well to support our strong commercial sales momentum and deliver meaningful profitability improvement.”
Fiscal 2019 Outlook:
- Net sales are now expected to be in a range of $1.90 billion to $1.96 billion (previously $1.95 billion to $2.01 billion), a $50 million reduction. The decrease contemplates a $30 million impact from the Sears bankruptcy and $40 million in lower sales in Australia and Europe due to unfavorable weather, partially offset by incremental generator sales of $20 million related to Hurricanes Florence and Michael, which occurred in the first half of fiscal 2019.
- Net income is now expected to be in a range of $47 million to $55 million (previously $60 million to $68 million), or $1.10 to $1.30 per diluted share (previously $1.40 to $1.60 per diluted share). The reduction is due to the company’s expectation of lower sales and manufacturing volumes, partially offset by spending reductions. The outlook is prior to the impact of costs related to the company’s business optimization program and other charges incurred to date or the benefit of share repurchases.
- Operating margin is expected to be 4.5% to 4.8% (previously 5.3% to 5.5%), before the impact of charges from the business optimization program, bad debt charge, the litigation settlement charge or acquisition costs.
- The company continues to anticipate capital expenditures of approximately $65 million.
- The company’s business optimization program is now expected to generate pre-tax savings of $35 million to $40 million (previously $30 million to $35 million) by fiscal 2021. Total pre-tax charges to achieve the savings are now expected in the range of $60 million to $70 million (previously $50 million to $55 million), including fiscal 2019 program costs of $42 million to $46 million (previously $27 million to $32 million). The increase largely relates to higher than anticipated costs related to the ERP upgrade.