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Briggs & Stratton's Q4 Earnings Miss, Shares Up on Y/Y Rise - Analyst Blog

Shares of Briggs & Stratton Corp. ( BGG ) gained as much as 7.3% and eventually closed at $20.35 on Aug 14, after the company reported improved fourth-quarter fiscal 2014 (ended Jun 29, 2014) results. Adjusted earnings surged 41% year over year to 31 cents per share driven by higher sales volumes and continued focus on manufacturing efficiency and higher production levels. The results, however, lagged the Zacks Consensus Estimate of 35 cents per share.

On a reported basis, Briggs & Stratton posted earnings of 17 cents per share contrary to a loss of $1.17 per share in the prior-year quarter. The results in both the quarters include restructuring, goodwill and tradename impairment charges. Prior-year quarter also had a litigation settlement.

Operational Update

Net sales in the reported quarter increased 4% year over year to $496.8 million, beating the Zacks Consensus Estimate of $495 million. The year-over-year growth was led by higher sales of large engines.

Cost of sales rose 2% year over year to $400.3 million. Adjusted gross profit rose 13% to $96.5 million from $85.4 million in the prior-year quarter. Adjusted gross margin expanded 150 basis points (bps) year over year to 19.4%.

Engineering, selling, general and administrative expenses increased 7.6% year over year to $76 million. Adjusted earnings from operations went up 23.5% to $20.5 million from $16.6 million in the year-ago quarter.

Briggs & Stratton Corporation - Earnings Surprise | FindTheBest

Segmental Performance

Engines Segment: Net sales in this segment went up 6.3% year over year to $317.8 million. Net sales increased on higher placement of larger engines used in lawn and garden equipment for the North American market and higher sales in the European market, partly offset by lower sales of small engines. Adjusted income from operation for the segment was $22 million versus $14 million in the year-ago quarter.

Product Segment: The segment reported sales of $206.6 million, up 2% from the year-ago quarter, driven by higher sales of pressure washers, commercial lawn and garden equipment and service parts in the North America market, partly offset by lower sales of generators. The segment reported an adjusted loss of $1.4 million compared with a loss of $0.9 million in the year-ago quarter.

Fiscal 2014 Performance

Briggs & Stratton reported adjusted earnings of 82 cents per share for fiscal 2014, down 11.8% from 93 cents per share in fiscal 2013. The results also lagged the Zacks Consensus Estimate of 85 cents and were below the management's guidance range of 88 cents - $1.04 per share. On a reported basis however, earnings were 59 cents per share for fiscal 2014, a turnaround from a loss of 73 cents per share posted a year ago.

Revenues for fiscal 2014 were $1.9 billion, flat year over year. Higher sales of engines used on lawn and garden equipment, increased sales of pressure washers and sales from Branco acquisition were offset by lower sales of generators. Revenues surpassed the Zacks Consensus Estimate of $1.8 billion and were in line with the management's guidance range of $1.85-$1.92 billion. The company reported organic growth (excluding around $100 million storm related sales and acquisition growth) of 4%.

Financials

Briggs & Stratton generated cash flow from operations of $127 million in fiscal 2014 compared with $160.8 million in fiscal 2013. The decrease in operating cash flows was primarily related to changes in working capital. The company had cash and cash equivalents of $194.7 million at the end of fiscal 2014 compared with $188.4 million at the end of fiscal 2013. Net debt was $30.3 million as of Jun 29, 2014, down from $36.9 million as of Jun 30, 2013.

On Aug 13, Briggs & Stratton's board approved a 4% increase in its quarterly cash dividend to 12.5 cents per share from the prior quarterly dividend of 12 cents per share. The increased dividend will be paid on Oct 1, 2014, to shareholders of record at the close of business as of Sep 17, 2014. In addition, the board also authorized an additional $50 million share repurchase program that will be in force till Jun 30, 2016.

On Aug 14, the company signed a definitive agreement to acquire Allmand Bros., Inc. a leading designer and manufacturer of high quality towable light towers, industrial heaters, and solar LED arrow boards for about $62 million in cash. This acquisition will help in the expansion of Briggs & Stratton's higher margin commercial product portfolio and to diversify the business segments facilitating sales growth in the U.S. and abroad. The transaction is expected to close in the next 30 days.

Repurchase Program

During fiscal 2014, Briggs & Stratton repurchased 2,100,499 shares for worth around $430 million. Since the end of fiscal 2014, the company has repurchased an additional 658,167 shares for about $127 million. As of Aug 12, 2014, the company has authorization to repurchase up to around $75 million shares with an expiration date of Jun 30, 2016.

Restructuring Action

Briggs & Stratton achieved incremental pre-tax restructuring savings of $2.5 million in fiscal 2014. The company will continue to focus on premium residential products through its Snapper and Simplicity brands and commercial products through its Snapper Pro and Ferris brands. The company will also close its McDonough, GA location and production will be shifted to the existing facilities in Wisconsin and New York.

Total restructuring charges related to these actions are expected to be around $30 million to $37 million for fiscal 2015. The company anticipates savings of about $15 million to $20 million, wherein roughly $5 million to $7 million is expected to be realized in fiscal 2015 and the rest in fiscal 2016.

Outlook

For fiscal 2015, Briggs & Stratton projects net income in the range of $50-$60 million. It guided earnings per share in the band of $1.07-$1.27, without taking into account the effects of acquisitions, additional share repurchases and costs related to restructuring.

Net sales are anticipated to be within $1.88-$1.94 billion for fiscal 2015. Operating margins are expected to be in a range of 4.5%-5% reflecting positive impacts of the restructuring actions. The company projects capital expenditures in the range of $60 -$65 million.

Briggs & Stratton will benefit from new product launches and increase in sales in emerging regions. In addition, pressure washers, and commercial lawn and garden business continue to perform well. Moreover, its continuous focus on margin growth and geographical expansion through strategic acquisitions will aid growth in the near term.

Currently, Briggs & Stratton has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks worth a look in the industrial product sector include ACCO Brands Corporation ( ACCO ), AO Smith Corp. ( AOS ) and ARC Document Solutions, Inc. ( ARC ). All these stocks carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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