Briggs & Stratton Q1 Loss Widens, Shares Fall

Zacks

Shares of Briggs & Stratton Corporation (BGG) fell 5.7% on Oct 17, after it reported adjusted loss per share of 35 cents for first-quarter fiscal 2014, ended Sep 29, 2013. This compares unfavorably with the Zacks Consensus Estimate of loss per share of 31 cents and 28 cents loss in the year-ago quarter. Lower production at the Engines and Products segments were responsible for a wider loss.

On a reported basis, Briggs & Stratton posted loss of 41 cents per share compared with a loss per share of 35 cents in the prior-year quarter. Reported loss in the quarter included restructuring charges of 6 cents per share compared with 7 cents per share in the year-ago quarter.

Operational Update

Net sales grew 3% year over year to $317 million in the first quarter, surpassing the Zacks Consensus Estimate of $304 million. The year-over-year increase was driven by a rise in sales of engines and lawn and garden products, partially offset by lowered sales of portable generators.

Cost of sales crept up 3.8% year over year to $269.9 million. Adjusted gross profit was $47.4 million compared with $49 million in the prior-year quarter. Adjusted gross margin contracted 90 basis points (bps) year over year to 15%.

Engineering, selling, general and administrative expenses increased 4.8% year over year to $68.8 million. Adjusted loss from operation was $21.3 million compared with $16.7 million in the year-ago quarter.

Segment Performance

Engines Segment: Net sales in this segment went up 11.7% year over year to $183.8 million, led by higher sales of engines used in lawn and garden equipment, and related service parts in the North American and European markets. This was partially offset by negative sales mix due to fewer sales of larger engines and the negative impact of foreign exchange. Adjusted loss from operation for the segment was $16 million, flat with the year-ago quarter.

Product Segment: The Product segment reported sales of $153 million, down 11.7% from the year-ago quarter. Results were affected by lower sales of portable generators, reduced shipments of snow throwers in Europe and negative currency translations. But this was partially offset by higher sales of lawn and garden equipment as well as pressure washers and service parts, and increased sales from the Branco acquisition. The segment reported an adjusted loss of $5.8 million compared with a loss of $0.72 million in the year-ago quarter.

Financials

Cash and cash equivalents were $115 million as of Sep 29, 2013 compared with $101.6 million as of Sep 30, 2012. As of Sep 29, 2013, cash used in operating activities was $52.9 million compared with $41.4 million as of Sep 30, 2012. The higher use of operating cash flows was primarily related to lower reduction in accounts receivable, partially offset by the benefit of lower inventory production levels.

Net debt as of Sep 29, 2013 was $109.8 million, lower than $126.4 million as of Sep 30, 2012. Debt-to-capitalization ratio contracted to 26% as of Sep 29, 2013 from 27% in the prior-year quarter. During first-quarter fiscal 2014, the company repurchased 482,926 shares for $9.7 million.

Restructuring Actions

Briggs & Stratton achieved pre-tax savings of $0.7 million during the first quarter. The company is making good progress toward moving horizontal engine manufacturing from its Auburn, Alabama plant to China.

Pre-tax restructuring costs for fiscal 2014 are expected to be within $6 million to $8 million. The company also anticipates savings of $3 million to $5 million from these restructuring actions in fiscal 2014.

Outlook

Briggs & Stratton reaffirmed its net income guidance of $50 million to $62 million for fiscal 2014. The company also restated its earnings per share range of $1.04 to $1.28. Net sales were reiterated at $1.88 billion to $2.03 billion for 2014. It is also estimates that the retail market for lawn and garden products will increase 4–6% in the U.S.

Operating income margins were revised from 4–5% to 4.5–5%, reflecting positive impacts of the restructuring actions. Capital expenditures were also maintained at $50 million to $55 million.   

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). Alamo Group, Inc. (ALG) belongs to the industrial products sector and is yet to announce its third quarter results.

Other stocks in the same industry with a favorable Zacks rank are Kubota Corporation (KUBTY) with Zacks Rank #1 (Strong Buy) and AGCO Corporation (AGCO) with Zacks Rank #2 (Buy).

Read the Full Research Report on AGCO
Read the Full Research Report on KUBTY
Read the Full Research Report on ALG
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