MILWAUKEE — Briggs & Stratton Corp. (NYSE: BGG) announces financial results for its second fiscal quarter ended January 1, 2017.
- Second quarter net sales were $428 million, up $15 million or 3.6% compared to last year.
- Second quarter net income was $15.3 million, an increase from GAAP net income of $12.6 million and adjusted net income of $15.1 million last year.
- Second quarter diluted earnings per share were $0.35 compared to $0.28 (GAAP) and $0.34 (adjusted) last year.
- Repurchased $6.5 million in shares under the share repurchase program during the quarter.
"We are pleased with how the first half of our fiscal year has played out," says Todd J. Teske, Chairman, President and Chief Executive Officer. "We have set a solid foundation on which to deliver our full year projected sales and profitability growth, which included modest support from generator sales immediately following Hurricane Matthew. Our engine placement on lawn and garden products is set for the upcoming season and is consistent with last season as anticipated. We continue to introduce new, innovative residential products and engines that will help people get the job done."
Teske continued, "We have achieved strong sales growth of commercial engines and products over the past several years and sustaining this momentum is a key focus for us. We expect that our new products and engines this year will result in further success in this market. The new offerings are designed to improve the productivity of people who use our equipment to earn a living. This includes the launch of the Oil Guard system on our Ferris mowers which allows for oil changes every 500 hours compared to the typical 100 hours resulting in more uptime and more lawns getting cut. We also continue to offer a strong lineup for landscapers through our Billy Goat branded products including our new easy to use sod cutter that we launched for the upcoming season. Plus, we have introduced product expansions into larger, light commercial style standby generators, as well as towable air compressors and generators that are used on job sites. These new offerings, along with many other actions we are taking, further demonstrate that we are executing our strategy of investing in higher value, higher margin products while diversifying our business. All things considered, we believe that we are set up for a solid back half of the fiscal year."
Second Quarter Highlights Engines
- Starting in fiscal 2017, we implemented new sales terms for engines shipped to overseas customers, which result in earlier revenue recognition compared to the terms we used during previous fiscal years. The change in terms caused units sold and net sales to be higher by approximately 50,000 units and $5 million, respectively, in the second quarter of fiscal 2017.
- Using comparable sales terms, engine volumes sold decreased by 2% or approximately 40,000 engines in the second quarter of fiscal 2017. The decrease is due to timing of sales as we continue to anticipate that our customers will produce later in fiscal 2017 compared to fiscal 2016.
- Gross profit percentage decreased due to 8% lower manufacturing volume as well as unfavorable foreign exchange, mainly due to a decline in the value of the euro. Manufacturing efficiency improved compared to the prior year.
- Investment in our ERP system upgrade and higher pension expense were the primary drivers for ESG&A expenses to increase by $1.5 million compared to last year (after adjusting to exclude last year's litigation settlement).
- Equity in earnings of unconsolidated affiliates increased by $0.7 million largely due to the increased ownership in our service parts distributor.
Second Quarter Highlights Lawn & Garden
- Net sales increased by $18.2 million, primarily due to higher shipments of portable generators due to Hurricane Matthew, higher sales of commercial lawn and garden equipment, and timing of international shipments.
- Gross profit percentage increased by 190 basis points. Adjusted gross profit percentage increased 40 basis points, primarily due to favorable sales mix driven by our focus on selling higher margin lawn and garden equipment as well as the benefit of Hurricane Matthew, partially offset by unfavorable foreign exchange mainly due to the Australian dollar.
- Investment in our ERP system upgrade and higher marketing expenses were the primary drivers for ESG&A expenses to increase by $1.0 million compared to last year (after adjusting to exclude restructuring charges in the prior year).
- Equity in earnings of unconsolidated affiliates increased by $0.6 million due to the increased ownership in our service parts distributor.
Summary of Fiscal 2017 Guidance
- Net sales are expected to be in a range of $1.86 billion to $1.90 billion. We continue to expect that the U.S. residential lawn and garden market will improve by 1% to 4% including expected improvements in the housing market and seasonal spring weather in key markets. We also continue to expect that our engine customers will produce later in the season than they did a year ago which may shift engine sales between quarters. Further, as noted earlier we experienced a shift in certain foreign sales from the second half of the fiscal year to the first half of the fiscal year due to a change in our sales terms.
- Net income is expected to be in a range of $57 million to $64 million or $1.31 to $1.46 per diluted share (prior to the impact of any share repurchases).
- Operating margins are expected to be approximately 5.5% to 5.8%. Adjusted operating margins for fiscal 2016 were 5.0% (2.6% GAAP), 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 (2.7% GAAP)).
- The effective tax rate is expected to be in a range of 31% to 33%.
- Capital expenditures are expected to be $70 million to $80 million.