Briggs & Stratton Corporation Reports Results for the First Quarter of Fiscal 2005
MILWAUKEE, Oct. 21, 2004 -- Briggs & Stratton Corporation today announced first quarter consolidated net sales of $439.0 million and a net loss of $1.5 million or $.06 per diluted share. Consolidated net sales increased $107.6 million or 32% over the prior year while net income decreased $5.5 million over the same period a year ago. The primary factor that caused the first quarter results to be less than last year was a $10.0 million ($6.4 million after tax) increase in the reserve for uncollectible receivables caused by the financial difficulties of a customer.
The majority of the $107.6 million net sales increase was due to the inclusion of $79.5 million of sales of our Simplicity Manufacturing, Inc. ("Simplicity") acquisition, which was completed on July 7, 2004. The remainder of the net sales increase was the result of a mix of shipments that favored higher priced, higher horsepower engines and an increase in generator shipments due to the high number of demand creating weather events.
The first quarter benefited from better engine mix, increased engine production, lower interest expense and higher dividend income. These improvements more than offset cost increases for raw materials and components that continue to be at high levels however, the increase in the allowance for doubtful accounts created a net loss for the quarter. The Simplicity acquisition did not benefit the first quarter because of the accounting treatment required on the acquired inventory.
Engines:
Fiscal 2005 first quarter net sales were $254.1 million, an $18.4 million or 8% improvement over the prior year. This increase is primarily due to a first quarter mix of shipments that favored higher priced, higher horsepower engines. The favorable mix was created by strong summer demand for riding lawnmower equipment and the need for the larger engines used in portable generators.
The loss from operations was $4.7 million, a decrease of $8.7 million from the income reported for the same period a year ago. A favorable mix of engine shipments, price improvement and a significant increase in plant utilization in the first quarter provided positive contributions to income from operations. However, income from operations was lowered between years by the previously mentioned $10.0 million accounts receivable reserve increase and increased raw material and component costs.
Power Products:
First quarter net sales were $222.3 million, a $97.5 million or 78% increase over the same period a year ago. The increase in net sales was the result of having $79.5 million of sales from our Simplicity acquisition and a 30% unit increase in the shipment of generators. These positive trends were partially offset by a 6% decrease in pressure washer unit shipments. Last year's first quarter generator sales were primarily impacted by the East Coast power grid failure. The unusual level of hurricane activity in this year's first quarter created a concentrated demand that was capped by product availability.
Income from operations was $5.2 million, a decrease of $3.5 million or 41% from the prior year. The operating income improvement from increased generator volume was offset by lower unit pricing experienced on pressure washer shipments, higher costs for steel and copper and lower utilization of the production capacity. Pressure washer production was approximately 50% lower than last year because of increased inventory levels between years. The Simplicity acquisition negatively impacted income from operations by $.8 million primarily resulting from the application of purchase accounting rules that increased the cost of sales by $4.0 million.
General:
Interest expense is lower in the first quarter of fiscal 2005 because outstanding long-term debt is lower than last year's level. The effective tax rate is at 36% versus the 32% used in the first quarter last year.
Outlook:
We believe the stronger than anticipated first quarter sales of generators allows us to increase our sales forecast for the Power Products Segment. In addition, as we assess preliminary engine demand and placement, we now believe that engine unit volume could increase by approximately 6% instead of the 3% originally anticipated. Consequently, we now project that consolidated net sales for the year will be approximately 26% higher than last year. The sales of our Simplicity acquisition continue to be projected at $360 million.
Consolidated gross profit margin for the year is currently projected to be 22% to 23%. We have reduced our margin projection to reflect that the higher costs experienced on certain raw materials and components in the first quarter will remain at these levels for the full fiscal year. An incremental 4% price increase on certain powered products, in addition to our initial price increase and our cost reduction initiatives will not fully offset these higher costs.
Consolidated operating expenses are estimated to be between 11% and 12% of net sales. Interest expense is estimated to be $32 million, and other income is projected to be in the $12 to $14 million range. This projection assumes an effective tax rate of 36% for the year, but the American Jobs Creation Act of 2004 could have an impact on our rate going forward. These assumptions result in an annual net income forecast in the range of $150 to $160 million.
We project that second quarter sales will be approximately 28% greater than last year. Operating margins are estimated to be slightly lower than last year due to purchase accounting for Simplicity and net income is forecast to be up about 28% over the same period a year ago.
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) 802-4362. 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 568924.
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, tax, 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; our customer's ability to successfully obtain financing; the actions of other suppliers and customers of our OEM customers; actions by potential acquirers of certain OEMs; 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 September
(In Thousands, except per share data)
(Unaudited)
Three Months Ended Fiscal September
2004 2003
NET SALES $438,995 $331,395
COST OF GOODS SOLD 368,177 271,200
Gross Profit on Sales 70,818 60,195
ENGINEERING, SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES 67,960 45,900
Income from Operations 2,858 14,295
INTEREST EXPENSE (8,119) (9,832)
OTHER INCOME, Net 2,933 1,443
Income (Loss) before Provision
(Credit) for Income Taxes (2,328) 5,906
PROVISION (CREDIT) FOR INCOME TAXES (840) 1,890
Net Income (Loss) $(1,488) $4,016
Average Shares Outstanding 25,596 21,971
BASIC EARNINGS PER SHARE $(0.06) $0.18
Diluted Average Shares Outstanding 25,870 22,105
DILUTED EARNINGS PER SHARE $(0.06) $0.18
Segment Information
(In Thousands)
(Unaudited)
Three Months Ended Fiscal September
2004 2003
NET SALES:
Engines $254,112 $235,687
Power Products 222,299 124,761
Inter-Segment Eliminations (37,416) (29,053)
Total* $438,995 $331,395
*Includes international sales of $81,858 $54,804
GROSS PROFIT ON SALES:
Engines $44,245 $42,897
Power Products 24,198 15,679
Inter-Segment Eliminations 2,375 1,619
Total $70,818 $60,195
INCOME FROM OPERATIONS:
Engines $(4,676) $3,999
Power Products 5,159 8,677
Inter-Segment Eliminations 2,375 1,619
Total $2,858 $14,295
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets as of the End of Fiscal September
(In Thousands)
(Unaudited)
CURRENT ASSETS: 2004 2003
Cash and Cash Equivalents $28,857 $238,556
Accounts Receivable, Net 270,125 226,153
Inventories 456,948 264,245
Deferred Income Tax Asset 57,506 51,920
Other 24,958 14,610
Total Current Assets 838,394 795,484
OTHER ASSETS:
Goodwill 252,520 154,070
Investments 45,299 45,204
Prepaid Pension 82,488 75,693
Deferred Loan Costs, Net 6,049 7,795
Other Long-Term Assets,
Net 103,731 8,852
Total Other Assets 490,087 291,614
PLANT AND EQUIPMENT:
At Cost 944,800 874,307
Less - Accumulated
Depreciation 524,931 507,369
Plant and Equipment, Net 419,869 366,938
$1,748,350 $1,454,036
CURRENT LIABILITIES: 2004 2003
Accounts Payable $155,464 $105,577
Domestic Notes Payable 1,220 2,075
Foreign Loans 1,784 -
Accrued Liabilities 170,493 158,467
Total Current Liabilities 328,961 266,119
OTHER LIABILITIES:
Deferred Income Tax
Liability 105,289 58,871
Accrued Pension Cost 21,282 21,002
Accrued Employee Benefits 14,363 14,022
Accrued Postretirement
Health Care Obligation 76,641 47,455
Other Long-Term Liabilities 15,372 15,111
Long-Term Debt 360,752 501,063
Total Other Liabilities 593,699 657,524
SHAREHOLDERS' INVESTMENT:
Common Stock and
Additional Paid-in Capital 55,119 36,128
Retained Earnings 917,584 818,791
Accumulated Other
Comprehensive Income
(Loss) 4,037 (1,036)
Unearned Compensation on
Restricted Stock (1,873) (1,085)
Treasury Stock, at Cost (149,177) (322,405)
Total Shareholders'
Investment 825,690 530,393
$1,748,350 $1,454,036
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended Fiscal September
CASH FLOWS FROM OPERATING ACTIVITIES: 2004 2003
Net Income (Loss) $(1,488) $4,016
Depreciation and Amortization 17,886 15,846
Loss on Disposition of Plant and
Equipment 716 651
Provision for Deferred Income Taxes (13,377) (2,292)
Increase in Accounts Receivable (13,353) (24,195)
Increase in Inventories (56,618) (55,107)
Decrease in Other Current Assets 880 3,278
Decrease in Accounts Payable and
Accrued Liabilities (28,403) (35,839)
Other, Net (4,591) (3,497)
Net Cash Used in Operating Activities (98,348) (97,139)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment (17,438) (11,564)
Proceeds Received on Disposition of
Plant and Equipment 212 113
Cash Paid for Acquisition, Net of
Cash Received (222,548) -
Dividends Received 6,500 -
Refund of Cash Paid for Acquisition - 5,686
Net Cash Used in Investing Activities (233,274) (5,765)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Payments on Loans and Notes
Payable (123) (865)
Proceeds from Exercise of Stock
Options 17,648 16,803
Net Cash Provided by Financing
Activities 17,525 15,938
EFFECT OF EXCHANGE RATE CHANGES 560 707
NET DECREASE IN CASH AND CASH
EQUIVALENTS (313,537) (86,259)
CASH AND CASH EQUIVALENTS, Beginning 342,394 324,815
CASH AND CASH EQUIVALENTS, Ending $28,857 $238,556