BRIGGS & STRATTON REPORTS 1Q FY19 SALES DOWN 15.2% FROM PRIOR YEAR
Nov. 5, 2018
Source: Briggs & Stratton news release
Milwaukee, Wisconsin -- Briggs & Stratton Corporation has announced its financial results for its first quarter of fiscal 2019, which ended September 30, 2018.
Fiscal first quarter net sales were $279 million, a decrease of $50 million or 15.2% from $329 million for the prior year. Lower sales resulted from fewer storm-driven power outages, warm and dry conditions in Australia and Europe and the timing of shipments.
Sales of commercial products increased by over 12% in the fiscal first quarter.
Quarterly GAAP gross profit margin of 15.7% and adjusted gross profit margin of 16.9% decreased from GAAP gross profit margin of 20.1% and adjusted gross profit margin of 20.5% last year driven partially by unfavorable sales mix due to lower service part sales, less manufacturing throughput and lower storm-generated contribution margin.
First quarter GAAP net loss of $41.0 million included business optimization charges, bad debt expense of $4.1 million for a major retailer that filed for bankruptcy protection, and a litigation settlement charge. Excluding these items, the adjusted net loss was $21.0 million, or $0.51 per diluted share, compared to adjusted loss of $11.3 million, or $0.27 per diluted share in the fiscal first quarter of the prior year.
The company repurchased $5.1 million of common stock under the company's share repurchase program during first fiscal quarter of fiscal 2019.
"Our outlook for fiscal 2019 remains intact despite a slower start to the year than we had anticipated," stated Todd J. Teske, Chairman, President and Chief Executive Officer. "Unseasonably dry conditions in Australia and Europe did not subside until after the quarter ended. On a full-year basis, however, we expect that generator sales from Hurricanes Florence and Michael will offset the softness in those international markets. In the U.S., grass growing conditions were more normal throughout the summer months and we continue to believe that demand in the U.S. market will be robust for the upcoming season. Timing of customer demand as well as a temporary reduction in business throughput as we adapted to our upgraded ERP system contributed to lower sales globally in the first quarter. Our team has made great headway in improving efficiency since the ERP go-live at the beginning of July such that we are well-positioned to improve throughput in the second quarter and begin to shift our focus to driving business optimization savings in the back half of the fiscal year as planned." Teske continued, "We also continued to drive strong growth of commercial sales in the first quarter, particularly within our job site business, and we expect to achieve another year of solid commercial growth. We are also well positioned to achieve our business optimization program results from on-shoring the production of Vanguard commercial engines, transitioning to a new, more efficient production facility for commercial mowers and upgrading our ERP system."
Teske added, "We expect that the recently announced Sears Holdings Corporation bankruptcy filing will have a limited impact on our outlook for the fiscal year. Net sales in support of Sears represent less than 3% of our total net sales outlook, and we will work closely with channel partners to mitigate sales loss due to a potential acceleration in the reduction of Sears stores. As we reported in August, we are positioned to hold our market-leading placement of residential engines despite the higher than usual brand transition at retail this upcoming season and we look forward to working with our channel partners to drive solid brand launches."
Fiscal 2019 Outlook:
Net sales are now expected to be in a range of $1.95 billion to $2.01 billion (previously $1.93 billion to $1.99 billion). The increase in net sales outlook primarily contemplates higher pricing to offset the anticipated cost of U.S. tariffs that were implemented in September.
Generator sales of approximately $18 million from Hurricanes Florence and Michael are expected to offset lower sales of residential engines and products in Australia and Europe due to the unfavorable weather conditions experienced in the first quarter. The outlook excludes the potential impact from the outcome of the Sears bankruptcy proceeding, which may reduce sales up to $30 million.
Net income is now expected to be in a range of $60 million to $68 million (previously $58 million to $66 million), or $1.40 to $1.60 per diluted share (previously $1.35 to $1.55 per diluted share). The increase in the outlook is due to our expectation of achieving a lower tax rate, before charges, of 21% to 23% (previously 24% to 26%) from a tax benefit associated with our business optimization initiative. The outlook is prior to the impact of costs related to our business optimization program, bad debt charge, the litigation settlement charge, acquisition costs or the benefit of share repurchases, and excludes the potentially unfavorable impact of up to $0.15 per diluted share depending on the outcome of Sears bankruptcy proceeding.
There are no updates to expected operating margin percentages of 5.3% to 5.5%, before the impact of charges from the business optimization program, bad debt charge, the litigation settlement charge or acquisition costs. 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.
The company continues to anticipate capital expenditures of approximately $65 million.
Pre-tax charges associated with the business optimization program were in line with expectations for the first quarter. Full year costs 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.