Mixed Quarter for Briggs & Stratton
Briggs & Stratton Corp. (BGG) reported second-quarter 2013 adjusted earnings per share (EPS) of 7 cents, well ahead of the Zacks Consensus Estimate of 2 cents and 40% higher than the year-ago quarter EPS of 5 cents. Including special items, the company reported a loss of 2 cents per share compared to earnings of 5 cents in the year-ago quarter.
Operational Update
Total revenue dipped 2% year over year to $439 million, and was well short of the Zacks Consensus Estimate of $448 million. Increased sales of portable and standby generators in response to Hurricane Sandy were offset by lower sales of snow throwers and engines for snow throwers in the U.S. and weak lawnmowers sales due to exceptionally dry conditions in Australia.
Cost of goods sold improved 4% to $359 million in the quarter. Adjusted gross profit increased 8% to $80 million. Selling, general and administrative expenses declined 5.6% to $69 million in the quarter. Adjusted operating income in the reported quarter was $10.9 million, a substantial improvement from $0.6 million in the year-ago quarter.
Segment Performance
The Engines segment’s sales fell 4% to $274 million on reduced shipments of engines used on snow thrower equipment in the North American market and walk mowers in the Australian market. Furthermore, an unfavorable mix of engines sold that reflected proportionately lower sales of large engines and reduced pricing arising from lower year-over-year material costs. Adjusted operating profit for the segment increased to $13 million from $2 million in the year-ago quarter.
The Product segment reported sales of $197 million, down 8% from the year-ago quarter. Results were affected by lower demand for snow thrower equipment and related service parts due to lack of adequate snowfall in the U.S. and reduced sales of lawn and garden equipment owing to dry conditions in the North American and Australian markets. However, higher shipments of portable and standby generators due to Hurricane Sandy and slightly improved pricing on lawn and garden equipment sold in the North American market were the bright spots. The segment reported an adjusted operating loss of $4.5 million compared with operating income of $0.6 million in the year-ago quarter.
Financials
Cash and cash equivalents were $18.2 million as of Dec 31, 2012 compared with $13.9 million as of Dec 31, 2011. Cash flow used in operating activities was $75 million during the first half of fiscal 2013 compared with $165 million in the comparable period last year. The improvement was primarily based on lower working capital needs in the most recent period associated with decreased receivables, lower production levels and planned inventory reductions, partially offset by contributions to the pension plan of $16.2 million in fiscal 2013. Debt to capitalization ratio increased to 28.1% as of Dec 31, 2012 from 25.4% as of Dec 31, 2011.
During the first half of fiscal 2013, Briggs & Stratton repurchased 1.05 million shares at an average price of $18.26 per share for a total price of $19.2 million.
Last month, the company completed the aquisition of Brazil-based Branco for approximately $57 million in cash. Branco is a leading brand in the Brazilian light power equipment market with a broad range of outdoor power equipment used primarily in light commercial applications in Brazil.
Restructuring Actions
The company has been taking steps to reconfigure and reduce its capacity and costs, diversify its portfolio and expand in other regions of the world. The company's restructuring program, started in fiscal 2012, achieved pre-tax savings of $19.1 million during the first six months of fiscal 2013.
Among other initiatives, the company has made progress toward finalizing its exit from the Newbern, Tennessee and Ostrava, Czech Republic manufacturing facilities and the consolidation of its Auburn, Alabama plant. Given the increased demand for engines and portable generators from storms that occurred in the first six months of fiscal 2013, the Auburn plant consolidation will extend into fiscal 2014.
The total pre-tax costs of these actions are expected to be $12 to $22 million in fiscal 2013. The company anticipates annualized pre-tax savings from these restructuring actions to be $30 to $35 million in fiscal 2013 and $40 to $45 million in fiscal 2014.
Fiscal 2013 Outlook
For fiscal 2013, the company expects adjusted net income in the range of $60 million to $75 million, or $1.25 to $1.55 per share. Net sales for fiscal 2013 are expected to be in the range of $1.95 billion to $2.15 billion. Operating margin is expected to be in the range of 5.1% to 5.6%.
Milwaukee, Wisconsin-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 a top manufacturer of portable generators and pressure washers, and is a leading designer, manufacturer and marketer of lawn and garden and turf care through its Simplicity, Snapper, FerrisMurray and Victa brands.
Briggs & Stratton retains a short-term Zacks Rank #3 (Hold). The other companies in the farm machinery industry such as AGCO Corporation (AGCO), CNH Global NV (CNH) and Titan International Inc. (TWI) are yet to announce their results for the December quarter.
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