Briggs & Stratton Corporation Reports Fiscal 2017 Second Quarter Results

MILWAUKEE, Jan. 25, 2017 /PRNewswire/ -- Briggs & Stratton Corporation (NYSE:BGG) today announced financial results for its second fiscal quarter ended January 1, 2017.

• Second quarter net sales were $428 million, up $15 million or 3.6% compared to last year.
• Second quarter net income was $15.3 million, an increase from GAAP net income of $12.6 million and adjusted net income of $15.1 million last year.
• Second quarter diluted earnings per share were $0.35 compared to $0.28 (GAAP) and $0.34 (adjusted) last year.
• Repurchased $6.5 million in shares under the share repurchase program during the quarter.

"We are pleased with how the first half of our fiscal year has played out," said Todd J. Teske, Chairman, President and Chief Executive Officer. "We have set a solid foundation on which to deliver our full year projected sales and profitability growth, which included modest support from generator sales immediately following Hurricane Matthew. Our engine placement on lawn and garden products is set for the upcoming season and is consistent with last season as anticipated. We continue to introduce new, innovative residential products and engines that will help people get the job done." Teske continued, "We have achieved strong sales growth of commercial engines and products over the past several years and sustaining this momentum is a key focus for us. We expect that our new products and engines this year will result in further success in this market. The new offerings are designed to improve the productivity of people who use our equipment to earn a living. This includes the launch of the Oil Guard system on our Ferris mowers which allows for oil changes every 500 hours compared to the typical 100 hours resulting in more uptime and more lawns getting cut. We also continue to offer a strong lineup for landscapers through our Billy Goat branded products including our new easy to use sod cutter that we launched for the upcoming season. Plus, we have introduced product expansions into larger, light commercial style standby generators, as well as towable air compressors and generators that are used on job sites. These new offerings, along with many other actions we are taking, further demonstrate that we are executing our strategy of investing in higher value, higher margin products while diversifying our business. All things considered, we believe that we are set up for a solid back half of the fiscal year."

Conference Call Information:

The Company will host a conference call tomorrow at 10:00 AM (ET) to review this information. A live webcast of the conference call will be available on our corporate website: http://investors.basco.com.

Also available is a dial-in number to access the call real-time at (877) 233-9136. A replay will be offered beginning approximately two hours after the call ends and will be available for one week. Dial (855) 859-2056 to access the replay.

Non-GAAP Financial Measures

This release refers to non-GAAP financial measures including "adjusted gross profit", "adjusted engineering, selling, general, and administrative expenses", "adjusted segment income (loss)", "adjusted net income (loss)", and "adjusted diluted earnings per share". Refer to the accompanying financial schedules for supplemental financial data and corresponding reconciliations of these non-GAAP financial measures to certain GAAP financial measures.

Safe Harbor Statement:

This release contains certain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. The words "anticipate", "believe", "estimate", "expect", "forecast", "intend", "plan", "project", and similar expressions are intended to identify forward-looking statements. The forward-looking statements are based on the Company's current views and assumptions and involve risks and uncertainties that include, among other things, the ability to successfully forecast demand for our products; changes in interest rates and foreign exchange rates; the effects of weather on the purchasing patterns of consumers and original equipment manufacturers (OEMs); actions of engine manufacturers and OEMs with whom we compete; changes in laws and regulations; changes in customer and OEM demand; changes in prices of raw materials and parts that we purchase; changes in domestic and foreign economic conditions (including effects from the U.K.'s decision to exit the European Union); the ability to bring new productive capacity on line efficiently and with good quality; outcomes of legal proceedings and claims; the ability to realize anticipated savings from restructuring actions; and other factors disclosed from time to time in our SEC filings or otherwise, including the factors discussed in Item 1A, Risk Factors, of the Company's Annual Report on Form 10-K and in its periodic reports on Form 10-Q. We undertake no obligation to update forward-looking statements made in this release to reflect events or circumstances after the date of this release.

About Briggs & Stratton Corporation:

Briggs & Stratton Corporation (NYSE: BGG), headquartered in Milwaukee, Wisconsin, is focused on providing power to get work done and make people's lives better. Briggs & Stratton is the world's largest producer of gasoline engines for outdoor power equipment, and is a leading designer, manufacturer and marketer of power generation, pressure washers, lawn and garden, turf care and job site products through its Briggs & Stratton®, Simplicity®, Snapper®, Ferris®, Vanguard™, Allmand™, Billy Goat®, Murray®, Branco® and Victa® brands. Briggs & Stratton products are designed, manufactured, marketed and serviced in over 100 countries on six continents. For additional information, please visit www.basco.com and www.briggsandstratton.com.

Liquidity and Capital Resources:

Net debt at January 1, 2017 was $307.9 million (total debt, excluding debt issuance costs, of $355.2 million less $47.3 million of cash), or $50.0 million higher than net debt of $257.9 million (total debt, excluding debt issuance costs, of $318.2 million less $60.4 million of cash) at December 27, 2015.

Cash flows used in operating activities for the first six months of fiscal 2017 were $128.3 million compared to $98.6 million for the same period in fiscal 2016. The increase in cash used in operating activities was primarily related to changes in working capital, including higher accounts receivable due to timing of sales year over year.

During the first six months of fiscal 2017, the Company repurchased approximately 787,000 shares on the open market at an average price of $19.25 per share. As of January 1, 2017, the Company had remaining authorization to repurchase up to approximately $35 million of common stock with an expiration date of June 29, 2018.

Second Quarter Highlights

• Starting in fiscal 2017, we implemented new sales terms for engines shipped to overseas customers, which result in earlier revenue recognition compared to the terms we used during previous fiscal years. The change in terms caused units sold and net sales to be higher by approximately 50,000 units and $5 million, respectively, in the second quarter of fiscal 2017.
• Using comparable sales terms, engine volumes sold decreased by 2% or approximately 40,000 engines in the second quarter of fiscal 2017. The decrease is due to timing of sales as we continue to anticipate that our customers will produce later in fiscal 2017 compared to fiscal 2016.
• Gross profit percentage decreased due to 8% lower manufacturing volume as well as unfavorable foreign exchange, mainly due to a decline in the value of the euro. Manufacturing efficiency improved compared to the prior year.
• Investment in our ERP system upgrade and higher pension expense were the primary drivers for ESG&A expenses to increase by $1.5 million compared to last year (after adjusting to exclude last year's litigation settlement).
• Equity in earnings of unconsolidated affiliates increased by $0.7 million largely due to the increased ownership in our service parts distributor.

Second Quarter Highlights

• Net sales increased by $18.2 million, primarily due to higher shipments of portable generators due to Hurricane Matthew, higher sales of commercial lawn and garden equipment, and timing of international shipments.
• Gross profit percentage increased by 190 basis points. Adjusted gross profit percentage increased 40 basis points, primarily due to favorable sales mix driven by our focus on selling higher margin lawn and garden equipment as well as the benefit of Hurricane Matthew, partially offset by unfavorable foreign exchange mainly due to the Australian dollar.
• Investment in our ERP system upgrade and higher marketing expenses were the primary drivers for ESG&A expenses to increase by $1.0 million compared to last year (after adjusting to exclude restructuring charges in the prior year).
• Equity in earnings of unconsolidated affiliates increased by $0.6 million due to the increased ownership in our service parts distributor.

Outlook:

Our outlook for fiscal 2017 remains unchanged from previous guidance.  We increased our full year guidance in October to account for the immediate impact of selling portable generators to the areas impacted following Hurricane Matthew.  Given the relatively lower severity of the storm at landfall and the related lower impact of power outages, we have not observed a significant change in generator sales that we can attribute to Hurricane Matthew that would cause us to further change our guidance for generator sales.    

Summary of fiscal 2017 guidance:

• Net sales are expected to be in a range of $1.86 billion to $1.90 billion. We continue to expect that the U.S. residential lawn and garden market will improve by 1% to 4% including expected improvements in the housing market and seasonal spring weather in key markets. We also continue to expect that our engine customers will produce later in the season than they did a year ago which may shift engine sales between quarters. Further, as noted earlier we experienced a shift in certain foreign sales from the second half of the fiscal year to the first half of the fiscal year due to a change in our sales terms.
• Net income is expected to be in a range of $57 million to $64 million or $1.31 to $1.46 per diluted share (prior to the impact of any share repurchases).
• Operating margins are expected to be approximately 5.5% to 5.8%. Adjusted operating margins for fiscal 2016 were 5.0% (2.6% GAAP), which included the equity in earnings of unconsolidated affiliates for the second half of the fiscal year (5.2% if equity in earnings of unconsolidated affiliates had been included for the full year (2.7% GAAP)).
• The effective tax rate is expected to be in a range of 31% to 33%.
• Capital expenditures are expected to be $70 million to $80 million.

Non-GAAP Financial Measures

Briggs & Stratton Corporation prepares its financial statements using Generally Accepted Accounting Principles (GAAP). When a company discloses material information containing non-GAAP financial measures, SEC regulations require that the disclosure include a presentation of the most directly comparable GAAP measure and a reconciliation of the GAAP and non-GAAP financial measures. Management's inclusion of non-GAAP financial measures in this release is intended to supplement, not replace, the presentation of the financial results in accordance with GAAP. Briggs & Stratton Corporation management believes that these non-GAAP financial measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. Management also believes that these non-GAAP financial measures enhance the ability of investors to analyze our business trends and to understand our performance. In addition, we may utilize non-GAAP financial measures as a guide in our forecasting, budgeting and long-term planning process. Non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures presented in accordance with GAAP. The following tables are reconciliations of the non-GAAP financial measures:

SOURCE Briggs & Stratton Corporation

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