Briggs & Stratton Corp. (BGG), reported second-quarter fiscal 2014 (ended Dec 29, 2013) adjusted earnings of 5 cents per share, which declined 29% year over year. The results also lagged the Zacks Consensus Estimate of 10 cents. At the same time, management slashed its outlook for fiscal year 2014, following which the company’s shares fell 6.7% yesterday and closed at $21.20 at the end of trading.
Excluding the restructuring charges per share of 4 cents and 9 cents respectively, Briggs & Stratton posted earnings of a penny in second-quarter 2014 compared with a loss per share of 2 cents in the prior-year quarter.
Net sales fell 5% year over year to $416.6 million in the second quarter, falling short of the Zacks Consensus Estimate of $433 million. The year-over-year decrease was due to lower sales of standby and portable generators, partially offset by higher sales of engines as well as lawn and garden products.
Cost of sales went down 6% year over year to $337 million. Adjusted gross profit was $79 million as against $80 million in the prior-year quarter. Adjusted gross margin expanded 100 basis points (bps) year over year to 19%.
Engineering, selling, general and administrative expenses increased 3.7% year over year to $71.8 million. Adjusted earnings from operations were $7.5 million compared with $10.9 million in the year-ago quarter.
Engines Segment: Net sales in this segment declined 3% year over year to $265.7 million, driven by lower sales of engines used in generators partially. The decline was partly offset by higher North American sales of engines used on lawn and garden equipment and related services. Adjusted loss from operation for the segment was $10 million versus $13 million in the year-ago quarter.
Product Segment: The Product segment reported sales of $171.5 million, down 13% from the year-ago quarter. Results were affected by fall in net sales of standby and portable generators, along with unfavorable foreign exchange. This was partially offset by favorable late season growing conditions during the second quarter as well as higher sales of pressure washers and service parts. Net sales also benefited from the Branco acquisition. The segment reported an adjusted loss of $3.9 million compared with a loss of $4.4 million in the year-ago quarter.
Cash and cash equivalents were $98 million as of Dec 29, 2013, a substantial improvement from $18 million as of Dec 30, 2012. The company recorded net cash usage in operating activities of $45 million in the first half of fiscal 2014, compared with $75 million in the year-ago comparable period. The improvement in operating cash flows was primarily related to lower seasonal growth in accounts receivable and fall in inventory due to lower production levels and planned inventory reduction.
Net debt as of Dec 29, 2013 was $126.8 million, lower than $228.7 million as of Dec 30, 2012. Debt-to-capitalization ratio contracted to 27% as of Dec 29, 2013 from 28% in the prior-year quarter.
On Aug 2012, the board of Briggs & Stratton authorized up to $50 million in funds associated with a share repurchase program with an expiry date of Jun 2014. Additionally, on Jan 22, 2014, the company declared an addition of $50 million to the buyback program and extended the expiry to Jun 2016.
Briggs & Stratton achieved pre-tax savings of $1.1 million during the quarter. The company is progressing well toward moving horizontal engine manufacturing from its Auburn, Alabama plant to China.
Pre-tax restructuring costs for fiscal 2014 is expected in the range of $6–$8 million. The company also anticipates savings of $2 million to $4 million from these restructuring actions in fiscal 2014.
Briggs & Stratton slashed its net income guidance of $50–$62 million to $48–$57 million for fiscal 2014, mainly to exclude the potential positive benefit of landed hurricanes from its guidance and to reflect foreign currency impacts and weak European snow sales.
Briggs & Stratton also lowered its earnings per share outlook from range $1.04–$1.28 to $1.00–$1.18 before the effects of any additional share repurchases and costs related to an announced restructuring. Net sales were modified at $1.88–$2.00 billion for 2014 from $1.88–$2.03 billion.
Operating margins were also revised from 4.5%–5% to 4.5%–4.8%, reflecting positive impact from the restructuring action. Capital expenditures were reiterated at $50 million to $55 million.
The company, however, remains optimistic about an improved lawn and garden market with year-over-year-gain in retail sales. Briggs & Stratton expects retail sales to increase in the band of 4%–6% in the U.S.
In addition, Briggs & Stratton will benefit from strong sales of pressure washers and engines. Moreover, continuous focus on margin growth and geographical expansion through strategic acquisition will help the company in the near term.
Milwaukee, Wis.-based Briggs & Stratton is the world's largest producer of gasoline engines for outdoor power equipment. Its wholly owned subsidiary, Briggs & Stratton Power Products Group LLC, is North America's top manufacturer of portable generators and pressure washers. This subsidiary also leads in the designing, manufacturing and marketing of standby generators and lawn, garden and turf care products through its popular brands.
Briggs & Stratton currently has a Zacks Rank #3 (Hold). However, other better-ranked stocks worth a look in the industrial product sector include ARC Document Solutions, Inc. (ARC), Altra Industrial Motion Corp. (AIMC) and Barnes Group Inc. (B). While ARC Document Solutions sports a Zacks Rank #1 (Strong Buy), Altra Industrial Motion and Barnes Group carry a Zacks Rank #2 (Buy).
Read the Full Research Report on AIMC
Read the Full Research Report on ARC
Read the Full Research Report on BGG
Zacks Investment Research
- Investment & Company Information
- Briggs & Stratton