Briggs & Stratton Corporation Reports Results for the Fourth Quarter and Twelve Months of Fiscal 2004
MILWAUKEE, Aug. 5, 2004 -- Briggs & Stratton Corporation today announced fiscal 2004 fourth quarter net sales of $545.3 million and net income of $40.2 million or $1.70 per basic share and $1.61 per diluted share. Net sales were $508.1 million in the same period a year ago and net income was $32.9 million or $1.52 per basic share and $1.39 per diluted share. The majority of the 7% improvement in quarterly net sales was due to unit volume increases in both business segments and an Engines Segment sales mix that favored higher priced product. The net income increase between quarters occurred primarily in the Engines Segment as a result of successful manufacturing cost reduction programs, increased sales volume, increased production volumes and a sales mix that favored higher margined products. The Company experienced higher manufacturing costs in the quarter, primarily for purchases of components and materials, which offset net income gains.
For fiscal 2004, the Company reported net sales of $1.95 billion and net income of $136.1 million or $6.01 per basic share and $5.53 per diluted share. For fiscal 2003, net sales were $1.66 billion and net income was $80.6 million or $3.73 per basic share and $3.49 per diluted share. The 17% improvement in net sales was primarily the result of greater unit sales volume in both business segments. Major factors contributing to the 69% increase in net income between years were greater sales and production volumes in both business segments, Engines Segment manufacturing cost reduction programs and improved margins on export sales due to a stronger Euro. For the year, higher manufacturing and operating expenses were an offset to net income gains.
Engines:
Fiscal 2004 fourth quarter net sales of engines were $443.3 million versus $431.4 million in the prior year. The 3% increase is primarily the result of a 2% increase in engine unit sales volume.
Net sales for fiscal 2004 were $1.62 billion, which was $189.0 million or 13% higher than fiscal 2003. On a year over year basis, engine unit volume accounted for about $163 million of the sales increase.
Income from operations for the fourth quarter of fiscal 2004 was $60.6 million compared to $49.4 million in the fourth quarter last year. This $11.2 million increase was the result of successful manufacturing cost reduction programs, greater sales and production volume and a sales mix that favored higher margined products. Higher manufacturing expenses related to surcharges for raw materials and increased employee benefit costs offset a portion of the favorable operating margin improvement factors.
The fiscal 2004 income from operations was $209.3 million, an increase of $74.6 million or 55% over fiscal 2003 results. Factors contributing to the improvement were essentially the same as described for the quarter but also included improved margins on European sales due to a Euro exchange rate that was more favorable than in the prior year. These gains were partially offset by an increase in manufacturing costs as described for the quarter and operating expenses which included increased employee benefit costs, professional services fees, marketing and international selling expenses.
Power Products:
Net sales were $140.4 million in the fiscal 2004 fourth quarter, up $20.8 million or 17% over the same period a year ago. Unit volume increased 11%. The remainder of the increase was primarily the result of the mix of sales favoring higher priced generator units during the quarter.
Net sales for fiscal 2004 were $489.3 million, increasing $159.8 million or 48% over the fiscal 2003 results. Unit volume increased 50%. The volume increase was the result of fiscal 2004 having more demand creating events for generators than were experienced in fiscal 2003, the introduction of new pressure washer product and increased promotional activity at retail and additional market penetration for both generators and pressure washer product.
Income from operations in the fiscal 2004 fourth quarter was $8.6 million, up $.4 million over the same period a year ago. The relatively flat income between years reflects an improvement in operating income resulting from benefits of slight sales and production increases offset by higher costs for components purchased in Euros from Italy.
Fiscal 2004 income from operations was $30.4 million compared to $17.2 million in fiscal 2003. For the year, the sales and production volume increases were partially offset by the increase in material costs related to the components purchased in Euros.
Outlook For Fiscal 2005:
Our initial estimate for fiscal 2005 anticipates net income in the range of $160 to $165 million. These projections include the forecasts of our recently completed acquisition of Simplicity Manufacturing Inc. ("Simplicity"). Consolidated sales are estimated to increase approximately 20%. Engines Segment net sales are forecasted to grow 4-5% from a combination of price and volume growth. Power Products Segment net sales are forecasted to grow 75-80%. The growth includes a forecast of $360 million of net sales resulting from Simplicity and an estimate of a net 5% growth for the generator and pressure washer products.
Consolidated gross profit margin for the year is projected to be in the range of 23% to 24%. The greatest challenge to achieving this gross margin level will be the upward cost pressure we are projecting to continue for manufacturing costs, primarily for purchased components and raw materials. We plan on a combination of price and volume increases to offset a portion of the increasing costs. In addition, our plans for fiscal 2005 include significant reductions in cost from our ongoing focus on manufacturing cost reduction programs.
Consolidated operating expenses are estimated to be approximately $274 million. The projected operating expenses for Simplicity are approximately $63 million. Interest expense is estimated to be $32 million, and other income is projected in the $10-$12 million range. We are assuming an effective tax rate of 36%. The estimates for depreciation and capital expenditures are $68 million and $87 million, respectively.
The Company will host a conference call today at 10:00 AM (EDT) to review this information. A live web cast of the conference call will be available on our corporate website: http://www.briggsandstratton.com/shareholders . Also available is a dial-in number to access the call real-time at (866) 206-7202. A replay will be offered beginning approximately two hours after the call ends and will be available for one week. Dial (888) 266-2081 to access the replay. The pass code will be 520832.
Other Matters:
In June 2004, a lawsuit was filed against the Company and other defendants alleging that horsepower labels on lawnmower products purchased by the plaintiffs were inaccurate. The complaint seeks an injunction, compensatory and punitive damages and attorney's fees on behalf of persons who bought lawnmowers since June 1999 powered by gasoline engines up to 20 horsepower. No orders have been entered in the case, and there has been no discovery. The Company intends to vigorously defend this case.
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," "may," "objective," "plan," "project," "seek," "think," "will," 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 and appropriately adjust our manufacturing and inventory levels; changes in our operating expenses; changes in interest 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; the seasonal nature of our business; changes in laws and regulations, including environmental, pension funding and accounting standards; work stoppages or other consequences of any deterioration in our employee relations; work stoppages by other unions that affect the ability of suppliers or customers to manufacture; acts of war or terrorism that may disrupt our business operations or those of our customers and suppliers; changes in customer and OEM demand; changes in prices of raw materials and parts that we purchase; changes in domestic economic conditions, including housing starts and changes in consumer disposable income; changes in foreign economic conditions, including currency rate fluctuations; new facts that come to light in the future course of litigation proceedings which could affect our assessment of those matters; our ability to successfully integrate the Simplicity acquisition; and other factors that may be disclosed from time to time in our SEC filings or otherwise. Some or all of the factors may be beyond our control. We caution you that any forward-looking statement reflects only our belief at the time the statement is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings for the Fiscal Periods Ended June
(In Thousands)
Fourth Quarter Twelve Months
2004 2003 2004 2003
NET SALES $545,304 $508,144 $1,947,364 $1,657,633
COST OF GOODS SOLD 424,240 399,718 1,507,492 1,329,554
Gross Profit on Sales 121,064 108,426 439,872 328,079
ENGINEERING, SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES 54,330 52,210 205,663 178,157
Income from Operations 66,734 56,216 234,209 149,922
INTEREST EXPENSE (8,634) (10,011) (37,665) (40,389)
OTHER INCOME, Net 3,285 2,231 8,460 9,045
Income Before Provision for
Income Taxes 61,385 48,436 205,004 118,578
PROVISION FOR INCOME TAXES 21,190 15,490 68,890 37,940
Net Income $40,195 $32,946 $136,114 $80,638
Average Shares Outstanding 23,634 21,681 22,643 21,639
BASIC EARNINGS PER SHARE $1.70 $1.52 $6.01 $3.73
Diluted Average Shares
Outstanding 25,312 24,521 25,340 24,480
DILUTED EARNINGS PER SHARE $1.61 $1.39 $5.53 $3.49
Segment Information
(In Thousands)
Fourth Quarter Twelve Months
2004 2003 2004 2003
NET SALES:
Engines $443,298 $431,431 $1,617,409 $1,428,411
Power Products 140,450 119,649 489,250 329,488
Inter-Segment Eliminations (38,444) (42,936) (159,295) (100,266)
Total* $545,304 $508,144 $1,947,364 $1,657,633
*International Sales
(included in the above) $83,858 $101,161 $375,335 $400,119
GROSS PROFIT ON SALES:
Engines $107,759 $95,414 $387,582 $291,937
Power Products 15,739 14,388 57,846 38,233
Inter-Segment Eliminations (2,434) (1,376) (5,556) (2,091)
Total $121,064 $108,426 $439,872 $328,079
INCOME FROM OPERATIONS:
Engines $60,606 $49,403 $209,337 $134,775
Power Products 8,562 8,189 30,428 17,238
Inter-Segment Eliminations (2,434) (1,376) (5,556) (2,091)
Total $66,734 $56,216 $234,209 $149,922
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets as of the End of Fiscal June 2004 and 2003
(In Thousands)
CURRENT ASSETS: 2004 2003
Cash and Cash Equivalents $341,187 $324,815
Accounts Receivable, Net 230,510 201,948
Inventories 337,731 209,138
Deferred Income Tax Asset 47,623 48,674
Other 23,735 22,572
Total Current Assets 980,786 807,147
OTHER ASSETS:
Goodwill 151,991 159,756
Investments 49,259 44,175
Prepaid Pension 81,730 74,005
Deferred Loan Costs, Net 6,325 8,314
Other Long-Term Assets 9,313 11,012
Total Other Assets 298,618 297,262
PLANT AND EQUIPMENT:
At Cost 867,987 876,664
Less - Accumulated Depreciation 511,445 505,880
Plant and Equipment, Net 356,542 370,784
$1,635,946 $1,475,193
CURRENT LIABILITIES: 2004 2003
Accounts Payable $120,141 $134,441
Domestic Notes Payable 1,220 2,075
Foreign Loans 700 865
Accrued Liabilities 177,025 164,014
Total Current Liabilities 299,086 301,395
OTHER LIABILITIES:
Deferred Revenue on Sale of
Plant & Equipment 14,929 15,163
Deferred Income Tax Liability 70,454 57,917
Accrued Pension Liability 20,871 20,368
Accrued Employee Benefits 14,201 13,901
Accrued Postretirement Health
Care Obligation 38,248 48,065
Long-Term Debt 360,562 503,397
Total Other Liabilities 519,265 658,811
SHAREHOLDERS' INVESTMENT:
Common Stock and Additional
Paid-in Capital 48,946 35,363
Retained Earnings 927,766 822,060
Accumulated Other Comprehensive
Income (Loss) 4,028 (734)
Unearned Compensation on
Restricted Stock (1,490) (287)
Treasury Stock, at Cost (161,655) (341,415)
Total Shareholders'
Investment 817,595 514,987
$1,635,946 $1,475,193
Consolidated Statements of Cash Flows
(In Thousands)
Twelve Months Ended Fiscal June
CASH FLOWS FROM OPERATING ACTIVITIES: 2004 2003
Net Income $136,114 $80,638
Depreciation and Amortization 66,898 63,526
Equity in Earnings of Unconsolidated
Affiliates (8,126) (5,224)
Loss on Disposition of Plant and
Equipment, Net 7,390 3,850
Provision for Deferred Income Taxes 12,800 24,278
Increase in Accounts Receivable (28,588) (5,958)
Increase in Inventories (128,594) (11,932)
Decrease (Increase) in Other Current Assets 2,017 (4,663)
Increase in Accounts Payable and Accrued
Liabilities 4,468 44,321
Increase in Prepaid Pension, Net (5,802) (13,566)
Other, Net (13,023) (7,875)
Net Cash Provided by Operating Activities 45,554 167,395
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment (52,962) (40,154)
Proceeds Received on Disposition of Plant
and Equipment 720 3,464
Refund of Cash Paid for Acquisition 5,686 -
Other, Net 4,642 9,861
Net Cash Used in Investing Activities (41,914) (26,829)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Repayments on Debt (1,042) (14,955)
Dividends (30,448) (27,709)
Debt Issuance Cost (1,789) -
Proceeds from Exercise of Stock Options 45,314 5,490
Net Cash Provided by (Used in) Financing
Activities 12,035 (37,174)
EFFECT OF EXCHANGE RATE CHANGES 697 5,478
NET INCREASE IN CASH AND CASH EQUIVALENTS 16,372 108,870
CASH AND CASH EQUIVALENTS, Beginning 324,815 215,945
CASH AND CASH EQUIVALENTS, Ending $341,187 $324,815