Briggs & Stratton Corporation (BGG), reported third-quarter 2013 adjusted earnings of 89 cents per share, a decrease of 10% from the prior-year quarter’s earnings of 99 cents per share. The results also missed the Zacks Consensus Estimate of $1.08.
On a reported basis, earnings declined 2.5% to 78 cents per share from the prior-year quarter’s earnings of 80 cents per share. Earnings in the reported quarter include restructuring charges of 11 cents per share compared with 19 cents in the year-ago quarter.
Operational Update
Net sales decreased 11.5% year over year to $637 million in the reported quarter and fell short of the Zacks Consensus Estimate of $696 million. The year-over-year decline in sales was attributable to reduced sales of engines and products to international regions as well as to the company’s decision to stop selling lawn and garden products to large mass retailers in the U.S.
Cost of sales decreased 12% to $504 million in the reported quarter. Gross profit was $126.8 million compared with $127.1 million in the prior-year quarter. Gross margin, however, expanded 220 basis points (bps) year over year to 19.8% in the quarter.
Engineering, selling, general and administrative expenses declined 4% to $70 million in the quarter. Adjusted operating income increased 5% to $56 million in the quarter from $53 million in the year-ago quarter. Operating margin contracted 140 bps year over year to 8.8%.
Segment Performance
Engines Segment: Net sales at the Engines Segment dropped 9.3% to $452 million, due to reduced shipments of engines used on walk and ride equipment in European and North American markets and unfavorable foreign exchange, partly offset by replenishment sales of generator engine in the U.S. Adjusted operating profit for the segment decreased to $62 million from $65 million in the year-ago quarter.
Product segment: The Product segment reported sales of $231 million, down 17.7% from the year-ago quarter. Results were affected by the company’s exit from the sale of lawn and garden equipment through national mass retailers, a decrease in sales of lawn and garden equipment and pressure washers in North America and continued drought conditions in parts of Australasia. These negatives were partly offset by increased sales from the acquisition of Branco. The segment reported an adjusted operating profit of $1 million compared with $8.7 million in the year-ago quarter.
Financials
Cash and cash equivalents were $22.6 million as of Mar 31, 2013 compared with $16.4 million as of Apr 1, 2012. Cash flow used in operating activities was $73.8 million or the first nine months of fiscal 2013 compared with $166.7 million in the comparable period last year. The improvement was primarily based on lower working capital needs in the first nine months of fiscal 2013 associated with decreased receivables and inventory. Debt-to-capitalization ratio increased to 27.8% as of Mar 31, 2013 from 26.9% as of Apr 1, 2012.
During the first nine months of fiscal 2013, Briggs & Stratton repurchased 1.2 million shares at an average price of $18.96 per share for a total price of $22.7 million.
Restructuring Actions
In the third quarter of fiscal 2013, the company entered into an agreement to sell Ostrava, Czech Republic manufacturing facility. The company's restructuring program achieved pre-tax savings of $19.1 million during the first six months of fiscal 2013. Among other initiatives, the company has made progress in finalizing its exit from the Newbern, Tennessee manufacturing facility and the move of horizontal engine manufacturing from its Auburn, Alabama plant to China.
The total pre-tax costs of these actions are expected to be $20 to $22 million in fiscal 2013. The company anticipates annualized pre-tax savings from these restructuring actions to be $32 to $37 million in fiscal 2013 and $40 to $45 million in fiscal 2014.
Outlook
Briggs & Stratton has revised the net income projections for fiscal 2013. The company now reduced its adjusted net income range of $56 million – $65 million from its previous guidance of $60 million – $75 million. Forecast for earnings per share has also been reduced from the range of $1.25 to $1.55 per share to the band of $1.16 to $1.33 per share.
Outlook for net sales also changed from the previous range of $1.95 billion to $2.15 billion to the new range of $1.95 billion to $2.0 billion. Operating margins expectations have also revised from the range of 5.1% to 5.6% to the band of 4.8% to 5.3%.
Based in Milwaukee, Wisconsin, 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 number one manufacturer of portable generators and pressure washers, and is a leading designer, manufacturer and marketer of standby generators, along with lawn, garden and turf care products through its popular brands.
Briggs & Stratton currently retains a short-term Zacks Rank #4 (Sell). Other companies in the machinery and farm industry with favorable Zacks Ranks are Alamo Group, Inc. (ALG), CNH Global NV (CNH) and Kubota Corporation (KUB). Each of them carries a Zacks Rank #2 (Buy).
ALAMO GROUP INC (ALG): Free Stock Analysis Report
BRIGGS & STRATT (BGG): Free Stock Analysis Report
CNH GLOBAL NV (CNH): Free Stock Analysis Report
KUBOTA CORP ADR (KUB): Free Stock Analysis Report
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