Briggs & Stratton Corporation Reports Earnings for the Third Quarter of Fiscal 2006
MILWAUKEE, April 20 -- Briggs & Stratton Corporation today announced fiscal 2006 third quarter consolidated net sales of $800.2 million and consolidated net income of $60.0 million or $1.16 per diluted share. The third quarter of fiscal 2005 had consolidated net sales of $840.5 million and consolidated net income of $80.6 million or $1.56 per diluted share. The consolidated net sales decrease of $40.3 million or 5% is primarily due to a $44.4 million reduction in net sales of Murray related lawn and garden equipment. Consolidated net income decreased $20.6 million between years. The decrease is primarily because last year's third quarter consolidated net income benefited from the recognition of an extraordinary gain of $19.8 million, net of tax.
For the first nine months of fiscal 2006, the Company had consolidated net sales of $1,886.2 million and consolidated net income of $86.6 million or $1.67 per diluted share. For the same period a year ago, consolidated net sales were $1,783.2 million, and consolidated net income was $86.2 million or $1.66 per diluted share. The $103.0 million or 6% increase in consolidated net sales is primarily due to the $98.9 million increase in net sales of Murray related product in fiscal 2006. The Murray assets were acquired in February of fiscal 2005. The nine-month consolidated net income was higher by $0.4 million.
Engines:
Fiscal third quarter net sales were $597.6 million versus $604.9 million for the same period a year ago, a decrease of $7.3 million or 1%. The decrease in net sales was primarily the result of a 6% engine unit shipment decline from the same period a year ago that reflects the shift of engine shipments from the third to the second quarter in fiscal 2006, with unit shipments up 1% through nine months. Offsetting the third quarter decreased unit shipments was an engine mix that favored higher priced product and a net improvement in unit pricing which reflected gains on domestically sold product offset by the impact of an unfavorable Euro exchange rate on European sold product.
Net sales for the first nine months of fiscal 2006 were $1,263.9 million versus $1,233.9 million in the prior year, an improvement of $30.0 million or 2%. The main drivers for the net sales increase were an engine unit shipment increase of 1% and a mix that favored higher priced product. Current year pricing initiatives went into effect late in the second quarter as a result, they have less of an impact on the nine month results.
Income from operations for the third quarter of fiscal 2006, which includes a $2.7 million expense for a previously announced reduction in salaried headcount, was $88.8 million, up $3.3 million from $85.5 million during the same period in the prior year. The improvement is attributable to ongoing cost reduction programs as well as a favorable mix of shipments of higher margined engines. The improvements to operating income were partially offset by increased legal and professional fees, stock option expensing, severance costs and lower sales volume.
Income from operations for the first nine months of fiscal 2006 was $133.3 million, up $37.9 million from $95.4 million during the same period a year ago. The major reason for the increase in income from operations was the absence of the prior year's $38.9 million bad debt expense. The year to date benefit of cost reduction programs, the gain associated with a first quarter property sale and increased sales volume were offset by increases in employee benefit costs, legal and professional fees, lower production volumes, and the impact of the previously announced reduction in salary headcount.
Power Products:
Fiscal 2006 third quarter net sales were $287.8 million versus $323.7 million from the same period a year ago, a decrease of $35.9 million. The decrease in net sales was primarily the result of the reduction of our sales of Murray related lawn and garden equipment. The Murray related product did not have as much market placement as it did a year ago. Premium lawn equipment sold better than last year. Generator net sales increased 21% due to strong pre-hurricane season retail stocking, while pressure washer net sales decreased 28% on a slow start to the spring retail season.
Net sales for the first nine months of fiscal 2006 were $845.0 million versus $714.9 million in the prior year, a $130.1 million increase. The majority of the increase resulted from the sales of Murray related product because of the Company's longer ownership of the brand in fiscal 2006. The remaining improvement is basically the result of a generator net sales increase of 25% due to strong storm activity earlier in the year and increased stocking in anticipation of the 2006 hurricane season. The generator increase more than offsets a pressure washer net sales decrease of 18%.
Income from operations was $14.6 million in the third quarter of fiscal 2006, essentially flat between years. Operating income improved $9.3 million due to higher utilization of the manufacturing facilities that produce generators and premium lawn equipment and the elimination of the impact of purchase accounting in the current year. However, the improvement was offset by higher material costs and lower sales and an increase in expenses associated with lawn equipment for the mass market.
Income from operations for the first nine months of fiscal 2006 was $20.2 million, an increase of $1.0 million from the operating income generated for the same period a year ago. Generators and premium lawn equipment products generated approximately $13.0 million of operating income improvement through price improvement, facilities utilization and mix that was greater than the related material cost increases. However, as in the quarter, the benefit was offset by the wind down of operations associated with lawn and snow equipment for the mass market.
General:
Other income was less in the fiscal 2006 third quarter due to the timing of receipt of dividends. Interest expense is greater in the third quarter and nine months of fiscal 2006 due to the addition of a term loan in February of 2005. The effective tax rate is 32.4% for the third quarter and 33.2% for the first nine months of fiscal 2006 versus the prior year's third quarter and nine-month rates of 34.0%.
The $19.8 million extraordinary gain recorded in the third quarter of fiscal 2005 resulted from the acquisition of selected Murray assets.
During the third quarter, the Company purchased 750 thousand shares in the open market, as part of a share repurchase approved by the Board of Directors. The average purchase price was $35.24 per share resulting in share repurchases totaling $26.6 million.
Outlook:
The third quarter sales of our Power Products segment were lower than anticipated and our fourth quarter projections do not anticipate recovering the lost sales. The operating costs associated with the Power Products segment were also greater than planned in the third quarter and we now expect that condition to exist through the fourth quarter. In addition, our current estimates could be affected by the retailer's perception of consumer demand due to a variety of factors. It is our understanding that retail sales of lawn and garden equipment has not been at the same level as a year ago so we now are forecasting that our engine shipments for the year will be 1% lower than anticipated in our last forecast. Consequently, our outlook on consolidated net income for the full fiscal year is now in the range of $132 to $135 million, or $2.56 to $2.62 per diluted share.
The Company anticipates capital expenditures for the year to be approximately $70.0 million and it will complete its previously announced share repurchase by June of 2006. In addition, during the fourth quarter the Company anticipates repaying approximately $90.0 million of the term loan that was used to acquire Murray assets in February of 2005.
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings for the Fiscal Periods Ended March
(In Thousands, except per share data)
(Unaudited)
Third Quarter Nine Months
2006 2005 2006 2005
NET SALES $800,194 $840,463 $1,886,216 $1,783,158
COST OF GOODS SOLD 619,261 674,735 1,506,623 1,440,470
Gross Profit on Sales 180,933 165,728 379,593 342,688
ENGINEERING, SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES 82,743 68,244 231,742 228,862
Income from Operations 98,190 97,484 147,851 113,826
INTEREST EXPENSE (10,893) (10,240) (32,226) (27,154)
OTHER INCOME, Net 1,508 4,930 13,995 13,944
Income before Provision for
Income Taxes 88,805 92,174 129,620 100,616
PROVISION FOR INCOME TAXES 28,797 31,350 43,067 34,220
Income before Extraordinary
Gain/(Loss) 60,008 60,824 86,553 66,396
EXTRAORDINARY GAIN/(LOSS) - 19,800 - 19,800
Net Income $60,008 $80,624 $86,553 $86,196
Average Shares Outstanding 51,478 51,194 51,633 51,428
BASIC EARNINGS PER SHARE $1.17 $1.57 $1.68 $1.67
Diluted Average Shares
Outstanding 51,561 51,710 51,730 51,964
DILUTED EARNINGS PER SHARE $1.16 $1.56 $1.67 $1.66
Segment Information
(In Thousands)
(Unaudited)
Third Quarter Nine Months
2006 2005 2006 2005
NET SALES:
Engines $597,608 $604,866 $1,263,938 $1,233,852
Power Products 287,766 323,650 844,982 714,912
Inter-Segment Eliminations (85,180) (88,053) (222,704) (165,606)
Total* $800,194 $840,463 $1,886,216 $1,783,158
*Includes international
sales of $169,707 $174,105 $435,311 $346,068
GROSS PROFIT ON SALES:
Engines $148,598 $133,710 $301,785 $266,636
Power Products 37,490 34,741 83,466 76,788
Inter-Segment Eliminations (5,155) (2,723) (5,658) (736)
Total $180,933 $165,728 $379,593 $342,688
INCOME FROM OPERATIONS:
Engines $88,794 $85,522 $133,260 $95,374
Power Products 14,551 14,685 20,249 19,188
Inter-Segment Eliminations (5,155) (2,723) (5,658) (736)
Total $98,190 $97,484 $147,851 $113,826
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets as of the End of Fiscal March
(In Thousands)
(Unaudited)
2006 2005
CURRENT ASSETS:
Cash and Cash Equivalents $63,515 $40,755
Accounts Receivable, Net 435,765 471,192
Inventories 593,799 530,907
Deferred Income Tax Asset 96,181 61,485
Other 24,932 20,371
Total Current Assets 1,214,192 1,124,710
OTHER ASSETS:
Goodwill 253,663 251,992
Investments 48,554 45,661
Prepaid Pension - 83,789
Deferred Loan Costs, Net 4,860 6,383
Other Intangible Assets, Net 95,058 96,930
Other Long-Term Assets, Net 29,195 4,345
Total Other Assets 431,330 489,100
PLANT AND EQUIPMENT:
At Cost 1,031,310 991,489
Less - Accumulated Depreciation 593,922 554,567
Plant and Equipment, Net 437,388 436,922
$2,082,910 $2,050,732
2006 2005
CURRENT LIABILITIES:
Accounts Payable $169,606 $173,724
Short-Term Borrowings 3,032 10,622
Current Maturity on Long-Term Debt 40,000 -
Accrued Liabilities 223,454 241,893
Total Current Liabilities 436,092 426,239
OTHER LIABILITIES:
Deferred Income Tax Liability 103,604 107,221
Accrued Pension Cost 56,049 22,120
Accrued Employee Benefits 16,034 14,885
Accrued Postretirement Health Care Obligation 82,619 77,144
Other Long-Term Liabilities 15,608 15,780
Long-Term Debt 441,940 486,131
Total Other Liabilities 715,854 723,281
SHAREHOLDERS' INVESTMENT:
Common Stock and Additional Paid-in Capital 64,744 55,566
Retained Earnings 1,081,839 987,736
Accumulated Other Comprehensive Income (Loss) (49,102) 7,293
Unearned Compensation on Restricted Stock (2,814) (1,863)
Treasury Stock, at Cost (163,703) (147,520)
Total Shareholders' Investment 930,964 901,212
$2,082,910 $2,050,732
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Nine Months Ended Fiscal March
CASH FLOWS FROM OPERATING ACTIVITIES: 2006 2005
Net Income $86,553 $86,196
Extraordinary Gain - (19,800)
Depreciation and Amortization 57,389 53,578
(Gain) Loss on Disposition of Plant
and Equipment (5,267) 1,922
Provision for Deferred Income Taxes (14,120) (15,428)
Increase in Accounts Receivable (74,979) (137,850)
Increase in Inventories (124,134) (49,996)
(Increase) Decrease in Other Current Assets (673) 5,960
Increase in Accounts Payable and Accrued
Liabilities 40,756 37,615
Other, Net 13,813 7,949
Net Cash Used in Operating Activities (20,662) (29,854)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment (49,409) (61,027)
Proceeds Received on Disposition of Plant
and Equipment 10,836 758
Investment in Joint Venture (900) (1,500)
Proceeds Received on Sale of Certain B&S
Canada Assets - 4,050
Cash Paid for Acquisition, Net of Cash Received - (350,044)
Refund of Cash Paid for Acquisition 6,347 -
Loan Receivable (2,500) -
Net Cash Used in Investing Activities (35,626) (407,763)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Repayments) Borrowings on Loans and
Notes Payable (2,411) 131,570
Dividends (22,760) (17,502)
Proceeds from Exercise of Stock Options 9,160 19,037
Treasury Stock Purchases (26,559) -
Net Cash (Used in) Provided by Financing
Activities (42,570) 133,105
EFFECT OF EXCHANGE RATE CHANGES 800 2,873
NET DECREASE IN CASH AND CASH EQUIVALENTS (98,058) (301,639)
CASH AND CASH EQUIVALENTS, Beginning 161,573 342,394
CASH AND CASH EQUIVALENTS, Ending $63,515 $40,755