MILWAUKEE — Briggs & Stratton recently announced financial results for its fiscal third quarter ended that April 1, 2018.

• Fiscal third quarter net sales were $604 million, an increase of $7 million, or 1.2%, from $597 million for the prior year from continued favorable momentum in commercial sales and higher sales of generators. The company estimates that unseasonable spring weather lowered quarterly lawn and garden sales by approximately $10 million from a year ago, but caused spring storms which helped elevate generator sales.
• Quarterly gross profit margin of 21.6% (GAAP) and adjusted gross profit margin of 21.9% decreased from a gross profit margin of 22.6% last year primarily due to sales mix, higher freight costs, and lower production volumes.
• Third quarter net income of $31.9 million, or $0.74 per diluted share (GAAP), included senior note repurchase premiums, business optimization charges and the impact of implementing tax reform. Excluding these items, adjusted net income was $36.2 million, or $0.84 per diluted share. Management estimates that unseasonable weather reduced fiscal 2018 third quarter earnings by approximately $0.05 per diluted share from a year ago.
• The company strengthened its capital structure in the third quarter by making a $30 million voluntary pension plan contribution and repurchasing approximately $19.8 million of its high yield senior notes.
• The Board of Directors authorized an additional $50 million in share repurchases reflecting its confidence in the company's strategy.
• The company is adjusting its fiscal 2018 earnings outlook to $1.33 - $1.50 per diluted share, before business optimization costs, senior note repurchase premiums and the implementation of tax reform, from previous guidance of $1.45 - $1.62 per diluted share due to the anticipation of certain channel partners reducing inventories this season to effect a more efficient transition of brands. In addition, unseasonable spring weather could reduce the company's fiscal 2018 outlook by up to an incremental $0.20 per diluted share.  The magnitude of the impact of the unseasonal spring weather is expected to be determined by the timing of the season breaking in the impacted regions, the pacing of the related retail sales and whether retailers will commit to an extended selling season.

"We achieved sales growth in the third quarter from higher generator sales and from our business diversification initiatives focused on more commercial customers and applications," said Todd J. Teske, chairman, president and chief executive officer. "This sales growth came about despite the headwind of unusually high snowfall on the east coast of the U.S. and an unseasonably cold start to spring in the U.S. and Europe.  The unseasonable spring weather has not yet abated; in fact, there has been record snowfall across much of the midwestern portion of the U.S. into the middle of April and continued cool temperatures which have effectively delayed the start of the spring growing season by over a month. Although the season has been delayed, we do expect a solid grass growing season as there is adequate ground moisture in the areas where lawns are prevalent.  Compounding the spring weather challenges, engine sales for residential mowers were negatively impacted in the third quarter by actions certain of our channel partners are taking to prepare for the anticipated transition of brands next season at a major retailer.  This transition has led to our channel partners taking a cautious approach to ordering for this season to reduce inventories and effect a more efficient transition following the end of the season.  While we now expect this brand transition to present a near-term challenge for us achieving our planned sales this season, we are confident of our future success in this category.  Homeowners will continue to rely upon our trusted brand and benefit from our innovative products that make work easier."    

Teske continued, "Looking ahead, we remain confident in our abilities to achieve our long-term growth and profitability objectives. More commercial customers are turning to Briggs & Stratton for the innovation we are bringing to higher-growth products and solutions which improve the productivity and safety of workers in commercial cutting, infrastructure, construction and other demanding jobs. Revenue growth in this area is 13% for the trailing 12 months. At the same time our position as the leading and preferred global supplier of power for residential lawn and garden is secure behind continued innovation. The business optimization program is on track to deliver $30-35 million in annual profit improvement." 

Updated fiscal 2018 guidance:

• Net sales, excluding any impact from the unseasonable weather during the second half of fiscal 2018, are expected to be in a range of $1.89 billion - $1.94 billion, down from previous guidance of $1.91 billion - $1.96 billion, due to expected lower residential engine sales from certain U.S. and European channel partners reducing inventories this season, partially offset by higher generator sales related to the recent east coast power outages from spring snow storms. The reduction in U.S. channel inventory is in anticipation of brand changes at a major retailer and the reduction in Europechannel inventory is largely due to new emissions requirements on engines produced beginning in calendar 2019. Unseasonable spring weather could negatively impact fiscal 2018 full-year net sales by up to $40 million.
• Net income, excluding any impact from the unseasonable weather, is expected to be in a range of $57 million - $65 million (previously $62 million - $70 million), or $1.33 - $1.50 per diluted share (previously $1.45 - $1.62 per diluted share). The reduction in net income is driven by expected lower engine sales and production due to reductions in channel inventory as well as $4.0 million (pre-tax) of higher freight costs. This outlook is prior to the benefit of share repurchases and excludes the costs of the business optimization program, senior note repurchase premiums and the implementation charge related to tax reform. In addition, unseasonable spring weather could negatively impact fiscal 2018 full-year net income by up to $0.20 per share.
• Operating margins are expected to be approximately 5.5% - 5.8%, down from previous guidance of approximately 5.8% - 6.0%, prior to the impact of costs related to the company's business optimization program. The reduction in operating margins is driven by expected lower engine sales and production due to expected channel inventory reductions as well as higher freight costs. In addition, unseasonable spring weather could negatively impact fiscal 2018 operating margins by up to 50 basis points.
• Capital expenditures are expected to be approximately $100 million, up from previous guidance of $80 million - $90 million. The increased spending is related to the company's business optimization initiative, which is proceeding well. The company continues to anticipate that fiscal 2019 spend will decrease to approximately $65 million.
• Fiscal 2018 interest expense, excluding premiums paid on the repurchase of senior notes, is expected to remain unchanged at $22.5 million. In addition, the fiscal 2018 effective tax rate is expected to remain unchanged at 29% - 31%, before business optimization expenses, premiums paid on the repurchase of senior notes and the implementation charge related to tax reform.