Briggs & Stratton Down on Earnings Miss - Analyst Blog

Briggs & Stratton Corp. BGG, reported third-quarter fiscal 2014 (ended Mar 30, 2014) adjusted earnings of 81 cents per share, which declined 9% year over year. The results also lagged the Zacks Consensus Estimate of 87 cents.

Following the earnings release, the stock price fell around 4.5% in the trading session and eventually closed at $22.05 on Apr 25.

Excluding the restructuring income per share of 1 cent, Briggs & Stratton posted earnings of 81 cents per share for third-quarter 2014 as compared with 78 cents in the prior-year quarter. Notably, the year-ago quarter figure excluded restructuring charges of 11 cents per share.

Operational Update

Net sales fell 1.4% year over year to $628.4 million in the reported quarter. However, revenues surpassed the Zacks Consensus Estimate of $617 million. The year-over-year decrease was due to lower sales of generators and engines.

Cost of sales dropped 1% year over year to $498.9 million. Adjusted gross profit was $129 million as against $133 million in the prior-year quarter. Adjusted gross margin contracted 30 basis points (bps) year over year to 20.6%.

Engineering, selling, general and administrative expenses increased 5.9% year over year to $74.8 million. Adjusted earnings from operations were $54.6 million compared with $62.7 million in the year-ago quarter.

Segmental Performance

Engines Segment: Net sales in this segment remained flat year over year at $452 million. Net sales increased on higher sales of engines used in lawn and garden equipment for the North American market, partially offset by lower sales of engines used in generators and products in Latin America and Australia. Adjusted income from operation from the segment was $59.6 million versus $62.5 million in the year-ago quarter.

Product Segment: This segment reported sales of $205 million, down 11% from the year-ago quarter. Results suffered due to a decrease in the sale of generators, lawn and garden equipment and a delay in the selling season, along with unfavorable foreign exchange rates. These were, however, partly offset by an increase in net sales of snow throwers and related service parts. The segment reported an adjusted loss of $4.9 million compared with an operating income of $1 million in the year-ago quarter.

Financials

Cash and cash equivalents were $107 million as of Mar 30, 2014, marking a substantial improvement from $22.6 million as of Mar 30, 2013. The company recorded net cash usage in operating activities of $14 million for the period of nine months ending Mar 30, 2014, compared with $74 million in the year-ago comparable period.

Net debt as of Mar 30, 2014 was $117.8 million, down from $239.9 million as of Mar 30, 2013. Debt-to-capitalization ratio contracted to 25% as of Mar 30, 2014 from 28% in the prior-year quarter.

Repurchase Program

On Aug 2012, the board of Briggs & Stratton authorized up to $50 million in funds related to a share repurchase program with an expiry date of Jun 2014. Additionally, on Jan 22, 2014, the company declared an addition of $50 million to the buyback program and extended the expiry to Jun 2016. During the first nine months of fiscal 2014, the company repurchased 1,479,626 shares at an average price of $20.32 per share.

Restructuring Action

Briggs & Stratton achieved pre-tax savings of $0.8 million during the quarter. The company is progressing well toward moving horizontal engine manufacturing from its Auburn, AL plant to China.

Pre-tax restructuring costs for fiscal 2014 are expected in the range of $6–$8 million. Moreover, the company anticipates savings of $2 million to $4 million from these restructuring activities in fiscal 2014.

Outlook

Briggs & Stratton trimmed its net income guidance of $48–$57 million to $43–$50 million for fiscal 2014. It also lowered the earnings per share outlook to $0.88–$1.04 from $1.00–$1.18, without taking into account the effects of additional share repurchases and costs related to any announced restructuring.  

Net sales projection was revised at $1.85–$1.92 billion for 2014 from $1.88–$2.00 billion.

Excluding the impact of restructuring charges, operating margins were revised from 4.5%–4.8% to 3.8%–4.2%. Capital expenditures were lowered to the range of $45 –$50 million from the earlier guidance of $50–$55 million.

Briggs & Stratton will benefit from strong sales of pressure washers and engines. Moreover, its continuous focus on margin growth and geographical expansion through strategic acquisitions will aid growth in the near term.

Milwaukee, WI-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 North America's top manufacturer of portable generators and pressure washers. This subsidiary is a leader in designing, manufacturing and marketing of standby generators and lawn, garden and turf care products through its popular brands.

Currently, Briggs & Stratton has a Zacks Rank #5 (Sell). However, some better-ranked stocks worth a look in the industrial product sector include Gorman-Rupp Co. GRC, Middleby Corp. MIDD and Alamo Group, Inc. ALG. While Gorman-Rupp and Middleby sport a Zacks Rank #1 (Strong Buy), Alamo Group carries a Zacks Rank #2 (Buy).