Briggs & Stratton Corp. (BGG - Snapshot Report) reported fourth-quarter 2012 adjusted earnings per share (EPS) of 22 cents, short of the Zacks Consensus Estimate of 28 cents and 31% lower than the year-ago quarter level. Including special items, the company reported a loss of 18 cents per share, narrower than the year-ago quarter loss of 36 cents per share. Results were affected by drought conditions in North America and cautious consumer spending in Europe owing to the economic uncertainty.
Total revenue plunged 17% year over year to $501 million, and was well short of the Zacks Consensus Estimate of $606 million.
Cost of goods sold improved 18% to $406 million in the quarter. Adjusted gross profit declined 13% to $95 million. Selling, general and administrative expenses declined 10% to $76 million in the quarter. Adjusted operating income in the reported quarter decreased to $18.9 million from $23.8 million in the year-ago quarter.
The Engines segment’s sales fell 18% to $322 million, due to weakness in the North American and European markets, resulting from drought conditions in North America and economic uncertainty in Europe. Furthermore, an unfavorable mix of engines sold that reflected proportionately lower sales of units used on riding lawn mowers and unfavorable foreign exchange of $1.2 million, partially offset by improved engine pricing led to the decline. Adjusted operating profit for the segment decreased to $23 million from $28 million in the year-ago quarter.
The Product segment reported sales of $221 million, down 14% from the year-ago quarter. Results were affected by lower sales volumes of portable generators due to fewer spring storms in fiscal 2012, reduced sales of riding lawn and garden equipment due to drought conditions and reduced sales volume in the international markets. However, increased shipments of pressure washers and improved pricing were partial offsets. The segment reported an adjusted operating loss of $5.5 million compared with the prior-year loss of $6.5 million.
Fiscal 2012 Performance
The company reported adjusted earnings per share of $1.15, which deteriorated 8% from the prior-year EPS of $1.25 and lagged the Zacks Consensus Estimate of $1.24 as well as the lower end of the company’s guided range of $1.15 to $1.35 per share. Including special items, EPS stood at 57 cents for the year, up 19% from 48 cents in fiscal 2011. Revenues declined 2% to $2 billion in fiscal 2012, falling way behind the company’s expectation of a growth in the range of 2% to 4%.
Cash and cash equivalents were $156 million as of fiscal 2012 end, compared with $209 million as of fiscal 2011 end. Cash inflow from operating activities was $66 million during fiscal 2012, down from $157 million in the prior fiscal, due to a year-over-year decrease in accounts receivable and cash contributions to the pension plan of $28.7 million in fiscal 2012. Total debt remained flat year over year at $228 million as of fiscal 2012 end. Debt to capitalization ratio increased to 26.5% as of fiscal 2012 end from 23.6% as of fiscal 2011 end.
Briggs & Stratton also announced a 9% (1 cent) hike in its quarterly dividend to 12 cents. The increased dividend will be paid on October 1, 2012, to stockholders of record as of August 20, 2012.
In the first quarter of fiscal 2012, the company’s board of directors had authorized a $50 repurchase program. As of the end of the fourth quarter of fiscal 2012, the company repurchased approximately 2.4 million shares for $39.3 million. In August 2012, the board of directors has authorized another $50 million share repurchase program, with an extended expiration date to June 30, 2014.
The company has been taking steps to reconfigure and reduce its capacity and costs, diversify its portfolio and expand in other regions of the world. The company also announced further cost reduction initiatives in the third quarter.
Among other initiatives, the company announced a shift in production facility of horizontal shaft engines from Auburn, Alabama to its existing production facility in Chongqing, China or sourced from third parties in Southeast Asia. The company has reduced manufacturing capacity by closing its Newbern, Tennessee and Ostrava, Czech Republic plants as well as the reconfigured its plant in Poplar Bluff, Missouri. The total pre-tax costs of these actions are expected to be $60 to $70 million, of which approximately $50 million has been recognized in fiscal 2012. The company anticipates annualized pre-tax savings from these restructuring actions to be $30 to $35 million in fiscal 2013 and $40 to $45 million in fiscal 2014.
Fiscal 2013 Outlook
For fiscal 2013, the company expects adjusted net income in the range of $60 million to $75 million, or $1.25 to $1.55 per share. Net sales for fiscal 2013 are expected to be in the range of $1.95 billion to $2.15 billion. Operating income margins are expected to increase over the fiscal 2012 levels and be in a range of 5.1% to 5.6%, reflecting the benefits from the restructuring programs.
Milwaukee, Wisconsin-based Briggs & Stratton is the world's largest producer of gasoline engines for outdoor power equipment. Its wholly owned subsidiary Briggs & Stratton Power Products Group, LLC is a top manufacturer of portable generators and pressure washers, and is a leading designer, manufacturer and marketer of lawn and garden and turf care through its Simplicity, Snapper, FerrisMurray and Victa brands.
Briggs & Stratton competes with Honda Motor Co., Ltd. (HMC - Analyst Report) and Kawasaki Heavy Industries Ltd. (KWHIY). Briggs & Stratton retains a short-term Zacks #3 Rank (Hold).