Briggs & Stratton Corp. (BGG) posted adjusted loss per share of 21 cents in the first quarter of fiscal 2015 (ended Sep 28, 2014), narrower than the prior-year quarter loss of 35 cents as well as the Zacks Consensus Estimate of a loss of 37 cents per share.
On a reported basis, Briggs & Stratton posted a loss of 34 cents, which was narrower than a loss of 41 cents in the prior-year quarter. Results in both quarters include restructuring charges. The reported quarter also had charges related to an acquisition.
Operational Update
Net sales in the reported quarter decreased 7.8% year over year to $292.6 million and also lagged the Zacks Consensus Estimate of $318 million. The year-over-year decline was due to lower sales of engines resulting from higher channel inventories in North America and lower sales of engines in Europe for snow thrower OEM customers due to sufficient inventory level.
Cost of sales went down 11.6% year over year to $238.5 million. Adjusted gross profit rose 14.3% to $54.2 million from $47.4 million in the prior-year quarter. Adjusted gross margin expanded 360 basis points (bps) year over year to 18.5%.
Engineering, selling, general and administrative expenses increased 1.9% year over year to $70 million. Adjusted loss from operations was $12.7 million in the reported quarter compared with a loss of $19.8 million in the year-ago quarter.
Segmental Performance
Engines Segment: Net sales in this segment declined 16.7% year over year to $153 million due to higher channel inventories in North America and lower shipments into the European market for snow throwers. The segment reported adjusted loss from operations of $13.7 million versus a loss of $14.8 million in the year-ago quarter.
Product Segment: The segment reported sales of $166 million, up 9% from the year-ago quarter, driven by higher sales of pressure washers, commercial lawn and garden equipment, and snow throwers in North America as well as on benefits from the Allmand acquisition, partly offset by lower sales of snow throwers in Europe. The segment reported an adjusted income of $0.86 million, which reversed from the loss of $5.8 million recorded in the year-ago quarter.
Financials
In first-quarter fiscal 2015, cash flow used in operating activities was $48.9 million as compared with an usage of $52.9 million in the prior-year period. As of Sep 28, 2014, the company had cash and cash equivalents of $61.9 million, down from $115.2 million as of Sep 29, 2013. Net debt was $163.1 million as of Sep 28, 2014, up from $109.8 million as of Sep 29, 2013.
On Aug 29, the company acquired Allmand Bros., Inc., a leading designer and manufacturer of high quality towable light towers, industrial heaters, and solar LED arrow boards, for about $62 million in cash. This acquisition will help in the expansion of Briggs & Stratton’s higher margin commercial product portfolio and to diversify the business segments facilitating sales growth in the U.S. and abroad.
Repurchase Program
During the first quarter of fiscal 2015, Briggs & Stratton repurchased 905,164 shares for around $17.8 million. As of Sep 28, 2014, the company has authorization to repurchase up to around $70 million worth of its shares with an expiration date of Jun 30, 2016.
Restructuring Action
Briggs & Stratton achieved incremental pre-tax restructuring savings of $1.2 million in the first quarter of fiscal 2015. The company began implementing the restructuring actions to narrow its assortment of lower-priced Snapper consumer lawn and garden equipment and consolidate its Products segment manufacturing facilities in order to reduce costs. The company will also close its McDonough, GA location in the second half of fiscal 2015 and production will be shifted to the existing facilities in Wisconsin and New York.
Total restructuring charges related to these actions are reiterated to be around $30 million to $37 million for fiscal 2015. The company anticipates savings of about $15 million to $20 million, wherein roughly $5 million to $7 million is expected to be realized in fiscal 2015 and the rest in fiscal 2016.
Outlook
For fiscal 2015, Briggs & Stratton upwardly revised its net income guidance to the new range of $53–$63 million from $50–$60 million. The company also raised its earnings per share outlook to $1.14–$1.35 from $1.07–$1.27, without taking into account the effects of acquisitions, additional share repurchases and costs related to restructuring. In fiscal 2015 earnings related to Allmand is anticipated to be accretive to earnings by 7 to 8 cents per share, excluding expenses.
Net sales projections for fiscal 2015 also increased to the new band of $1.94–$2.00 billion from $1.88–$1.94 billion. However, operating margins are reaffirmed in a range of 4.5%–5% reflecting positive impact of the restructuring actions. The company confirmed the outlook for capital expenditures in the range of $60–$65 million.
Briggs & Stratton will benefit from new product launches and increase in sales in emerging regions. Moreover, its continuous focus on margin growth, geographical expansion through strategic acquisitions and cost cutting will aid growth in the near term.
Currently, Briggs & Stratton has a Zacks Rank #3 (Hold).
Some better-ranked stocks worth a look in the industrial product sector include ACCO Brands Corp. (ACCO), Advanced Emissions Solutions, Inc. (ADES) and Allegion plc Ordinary Shares (ALLE). All these stocks carry a Zacks Rank #2 (Buy).
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