MILWAUKEE — Briggs & Stratton Corp. (BGG) announces financial results for its third fiscal quarter ended March 31, 2019.
- Third fiscal quarter net sales decreased 4% to $580 million from $604 million in the prior year. The decrease is largely driven by continued weather-related market softness in Australia and Europe as well as the impact to U.S. sales from the Sears bankruptcy.
- Ongoing favorable sales momentum led to 18% growth of engines and products designed for commercial markets, on a trailing twelve-month basis, and accounted for 30% of trailing twelve-month sales.
- Quarterly GAAP gross profit margin of 16.7% and adjusted gross profit margin of 17.4% decreased from last year's GAAP gross profit margin of 21.6% and adjusted gross profit margin of 21.9%, primarily due to sales mix, lower production volumes as planned, and start-up inefficiencies associated with our business optimization initiatives.
- Third quarter GAAP net income of $8.0 million, or $0.19 per diluted share, included business optimization charges and acquisition integration charges compared to GAAP net income of $31.9 million, or $0.74 per diluted share in the prior year. Excluding these items, adjusted net income for the fiscal 2019 third quarter was $14.6 million, or $0.34 per diluted share, compared with $36.2 million, or $0.84 per diluted share, for the prior year.
- The company is revising its fiscal 2019 earnings outlook to $0.45 to $0.55 per diluted share, before business optimization costs and other charges, from previous guidance of $1.10 to $1.30 per diluted share. The revision reflects continued weather-related market softness and the impact of temporary inefficiencies associated with the start-up of business optimization initiatives.
- The company's preliminary estimates for fiscal 2020 include meaningful sales and earnings improvement from the fiscal 2019 outlook. Net sales for fiscal 2020 are expected to be in a range of $1.98 billion to $2.03 billion and diluted earnings per share are expected to be in a range of $1.20 to $1.40, excluding business optimization program costs. Further context will be provided in tomorrow's earnings conference call.
Todd J. Teske, Chairman, President and Chief Executive Officer, commented, "We were disappointed in the quarterly results. Lower shipments due to the Sears bankruptcy, weather-related softness particularly in Australia and Europe, and inefficiencies from start-up activities related to our business optimization initiatives tempered overall sales performance and reduced quarterly profitability more than previously expected.
While incurring these elevated start-up costs were difficult from a financial performance perspective, they helped enable us to meet important customer delivery commitments on robust sales across commercial lines and position us well for long-term growth." Teske continued, "Actions are already underway to improve operating performance. Fulfillment levels in our service parts business have meaningfully improved, and we are now positioned to support demand during the peak season. Similarly, production of commercial Vanguard engines is increasing, following the on-shoring from our joint venture. Quality and performance for this line remain high, as closer proximity to our primary customer base is helping us win new business.
Production is also increasing at our new facility for Ferris mowers and other commercial products. Growing conditions are favorable throughout much of North America and Europe, which set the stage for a more normal grass-cutting season. The much-needed additional capacity is also giving us the resources to meet the higher demand for our innovative commercial products. Taken together, we are well-positioned to regain momentum on delivering the business optimization program pre-tax savings of up to $40 million by fiscal 2021 and are confident that our strategic actions position us for improving trends in revenue growth, profitability and capital returns as we enter fiscal 2020 and beyond."
Fiscal 2019 Outlook
- Net sales are now expected to be in a range of $1.86 billion to $1.91 billion (previously $1.90 billion to $1.96 billion), a $40 million reduction. The decrease contemplates $30 million in lower sales in Australia and Europe due to unfavorable weather conditions and a cautious retail sentiment. North America service parts sales are anticipated to be $10 million lower than previously estimated due to lower sales to date through the third quarter.
- Operating margin is expected to be 2.6% to 2.8% (previously 4.5% to 4.8%), before the impact of charges from the business optimization program, bad debt charge, litigation settlement charge or acquisition integration costs. The reduction is due to the company's expectation of lower sales as well as unfavorable sales mix, lower manufacturing volumes and temporarily elevated inefficiencies.
- Equity in earnings of unconsolidated affiliates is expected to be $11.5 million, and interest expense is expected to be $28.5 million, adjusted for business optimization charges and premiums paid to retire senior notes. Due to lower expected earnings, the consolidated tax rate is expected to be in a range of 10% to 12%.
- Net income is now expected to be in a range of $19 million to $23 million (previously $47 million to $55 million), or $0.45 to $0.55 per diluted share (previously $1.10 to $1.30 per diluted share), before the impact of charges.
- The company continues to anticipate capital expenditures of approximately $65 million.
- The company's business optimization program is expected to generate pre-tax savings of $35 million to $40 million by fiscal 2021 and related total program pre-tax charges are expected to be up to $70 million, including fiscal 2019 program costs of $42 million to $46 million.
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