MILWAUKEE, Wis. — Briggs & Stratton Corporation (NYSE: BGG) today announced financial results for its fiscal fourth quarter and year ended July 1, 2018.
For the fiscal 2018 fourth quarter:
- Fiscal fourth quarter net sales were $502 million, an increase of $28 million or 5.8% from $474 million for the prior year. Continued high growth in commercial turf and lawn care, commercial job site, commercial engines and generators was offset by year-over-year softness in residential lawn and garden sales.
- Quarterly GAAP gross profit margin of 21.6% and adjusted gross profit margin of 22.0% increased from gross profit margin of 21.3% last year driven by favorable sales mix due to higher sales of commercial offerings. Manufacturing efficiency improvements and higher pricing offset material and freight cost increases.
- Fourth quarter GAAP net loss of $11.8 million included business optimization charges, pension settlement charges, senior note repurchase premiums, and the impact of implementing tax reform. Excluding these items, adjusted net income was $20.1 million, or $0.47 per diluted share, which was slightly higher than $0.46 per diluted share for the fourth quarter of fiscal 2017.
For the fiscal 2018 full year:
- Fiscal 2018 net sales were $1.88 billion, up $95.2 million or 5.3% from $1.79 billion for fiscal 2017. The company set a new record for sales of commercial products, amounting to $505 million, an increase of 16% compared to last year.
- Full year GAAP gross profit margin of 21.2% was down from 21.5% for fiscal 2017. Adjusted gross profit margin of 21.5% was comparable with last year. Products adjusted segment operating margins of 3.3% improved by 170 basis points from last year.
- Full year GAAP net loss of $11.3 million, or $0.28 per diluted share, included business optimization charges, pension settlement charges, senior note repurchase premiums, and the impact of implementing tax reform. Excluding these items, adjusted net income was $55.8 million, or $1.29 per diluted share.
Capital allocation update:
- Capital expenditures of $103 million were elevated from prior years to fund the business optimization program.
- The company paid $24.0 million in cash dividends to shareholders during fiscal 2018.
- The company repurchased $10.3 million of common stock under the company's share repurchase program during fiscal 2018.
- The capital structure was strengthened by making a $30 million voluntary pension plan contribution and repurchasing approximately $22.3 million of the company's high yield senior notes.
"Ongoing robust shipments of commercial products sustained growth for the quarter and year, and demonstrated the effectiveness of our diversification strategy," stated Todd J. Teske, Chairman, President and Chief Executive Officer. "We are very pleased with the growth in commercial job site products, supported by new customers and channels. Placement of our Vanguard commercial engines powering more applications remains solidly on track. Shipments of Ferris commercial mowers finished the quarter on an upward trend, as weather conditions improved. This growth offset weakness in residential sales, which resulted from a severely delayed mowing season from a prolonged wet and cold spring across much of North America, compounded by inventory reductions among mass retailers in Europe and the U.S. being taken in anticipation of brand transitions. While these issues presented a challenge to achieving our planned sales this season, we are confident in our ability to maintain our market-leading placement in residential engines next season, based on discussions with channel partners. There has been good progress to date with line reviews as consumers continue to recognize the Briggs & Stratton brand for its innovation and reliability. We are well positioned to benefit from recovery to a more normalized environment."
Teske added, "I am pleased with the progress made in fiscal 2018 to position the company for improving performance. In addition to the contributions from the acquisition of assets of Ground Logic and recently Hurricane Power, we are on track with our business optimization initiatives to deliver $30-$35 million in annual profit improvement by 2021. We enter fiscal 2019 ramping up production in our new Ferris mower facility, which provides needed capacity and greater manufacturing efficiency. In addition, we will be increasing domestic production of Vanguard commercial engines, with the on-shoring of engines from overseas and strong customer demand for our expanded line of horizontal-shaft engines. Our upgraded ERP system successfully went live at the beginning of July, and we expect to begin accruing the benefits from a more streamlined platform. Taken together, we continue to expect to drive growth, efficiency and innovation as more people depend on Briggs & Stratton for power to get the job done."
Fiscal 2019 Outlook:
- Net sales are expected to be in a range of $1.93 billion to $1.99 billion for growth of approximately 2.5% to 5.8% (5.5% to 9.0% growth excluding storm-related sales of approximately $55 million for fiscal 2018)
- Markets for commercial products are expected to grow mid-single digits and we anticipate continued market share gains in the categories of commercial job site, commercial engines and commercial turf and lawn care, in addition to the benefit of the recent asset acquisitions.
- Residential sales, excluding fiscal 2018 storm volume, are expected to grow approximately 3% to 5%, which includes market improvement on more normal spring weather andsome normalization of channel inventory levels in the U.S. and Europe.
- We expect to hold our market-leading residential engine placement for the upcoming lawn and garden season.
- Net income is expected to be in a range of $58 million to $66 million, or $1.35 to $1.55 per diluted share, prior to the impact of costs related to our business optimization program, acquisition costs or the benefit of any share repurchases. This contemplates year-over-year midpoint growth of approximately 11%.
- Operating margins before business optimization costs and acquisition costs are expected to be approximately 5.3% to 5.5%. Compared to fiscal 2018, operating margins are expected to improve due to favorable sales mix from growth of commercial products and business optimization program savings of $6 million to $8 million. Higher material and freight costs are expected to be offset by pricing, efficiency improvements and product cost improvements.
- Interest expense is expected to be approximately $24.5 million and other income to be approximately $1 million, which includes approximately $2 million of pension expense that would have previously been reported in operating income.
- Tax rate before business optimization costs and acquisition costs are expected to be in a range of 24% to 26%, which includes the benefit of a full fiscal year under tax reform.
- The company anticipates capital expenditures to be approximately $65 million.
- Pre-tax charges associated with the business optimization program are expected to be approximately $27 million to $32 million in fiscal 2019. Total program cost estimate remains unchanged at $50 million to $55 million.
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