Q4 5.9% down, full year 2.4% down

Briggs & Stratton Corporation in the U.S has announced financial results for its fiscal fourth quarter and year ended June 30, 2019 - describing them as "disappointing".

The company released the following analysis - 

For the fiscal 2019 fourth quarter:

  • Fiscal fourth quarter net sales were $472 million, a decrease of $30 million or 5.9% from $502 million for the prior year. Fiscal 2018's fourth quarter included approximately $20 million of accelerated sales in anticipation of the go-live of the company's upgraded ERP system at the beginning of fiscal 2019. Adjusting for this, net sales this year decreased approximately 2%. Shipments for the fiscal 2019 fourth quarter fell short of expectations primarily due to difficult market conditions caused by an unusually wet spring in North America compounded by near-term market disruptions caused by channel partner transitions.
  • Quarterly GAAP gross profit margin of 14.4% and adjusted gross profit margin of 15.0% decreased from gross profit margin of 21.7% and adjusted gross profit margin of 22.1% last year due to sales mix, lower production volumes and operational inefficiencies. Challenges in labour availability restricted the Company's ability to more quickly remediate start-up inefficiencies related to the business optimisation initiatives.
  • Fourth quarter GAAP net loss of $18.5 million, or $0.45 per share, included business optimisation charges, acquisition integration charges and a pension settlement charge. Excluding these items, adjusted net loss was $14.9 million, or $0.36 per share, as compared to adjusted net income of $0.47 per diluted share for the fourth quarter of fiscal 2018. The fourth quarter of fiscal 2019 also included a non-cash tax related charge of $5.1 million, or $0.12 per share.

For the fiscal 2019 full year:

  • Fiscal 2019 net sales were $1.84 billion, down $44.7 million or 2.4% from $1.88 billion for fiscal 2018 primarily due to unusually dry weather conditions in Australia and Europe, lower storm generator sales and lower service parts sales, and near-term disruption caused by channel partner transitions, including the bankruptcy of a major North American retailer. Sales of commercial engines and products increased approximately 13% for the fiscal year.
  • Full-year GAAP gross profit margin of 16.4% was down from 21.2% for fiscal 2018. Adjusted gross profit margin of 17.0% was down from 21.5% last year due to sales mix, lower production volumes and startup inefficiencies from the Company's business optimisation initiatives.
  • Full-year GAAP net loss of $54.1 million, or $1.31 per share, included business optimisation charges, bad debt expense for a major retailer that filed for bankruptcy protection, a litigation settlement charge, a pension settlement charge, senior note repurchase premiums, a tax charge associated with tax reform and integration charges. Excluding these items, adjusted net loss was $12.9 million, or $0.32 per share.

Todd J. Teske, Chairman, President and Chief Executive Officer said, " We are clearly disappointed with the fiscal 2019 results. The fourth quarter capped a difficult year of unprecedented market challenges and higher than expected operational inefficiencies encountered during the ramp-up of our business optimisation initiatives.

"The North America lawn and garden market slowed considerably as the quarter progressed from unusually wet, cool spring weather compounded by near-term market disruptions with channel partners. Europe set record high temperatures in June and July to impede channel inventory reductions. While we achieved operational improvements on many of the business optimisation program start-up issues, continued inefficiencies offset the benefit of those improvements, including near-term labour availability challenges."

Teske continued, "Regardless of the cause of the various headwinds, it is our responsibility to address the issues and restore the company to growth and profitability. As we enter fiscal 2020, we are intensely focused on five key areas to drive improvements in performance:

  • First, we are working aggressively to complete the business optimisation program and eliminate the operational inefficiencies to begin realizing the $35 million to $40 million in pre-tax cost savings from the program.
  • Second, as we have also announced, we will be consolidating engine production within our plant in Poplar Bluff, Missouri, to streamline operations and adjust production capacity to meet current and anticipated future needs. This initiative will reduce pre-tax expenses by up to $14 million when fully implemented.
  • Third, we will be devoting increased time and focus to more fully analysing the dynamics of our market with outside help to position our business for more sustained growth and higher returns. Gaining an outside perspective will help our thinking, planning and actions to further adapt to the continually changing environment so that we are properly positioned as the market continues to change.
  • Fourth, we intend to strengthen our balance sheet, with the near-term objectives of improving working capital and lowering debt. With the winding down of investments in our business optimisation initiatives, projected lower capital expenditures and the action announced today to reduce the cash dividend, we will be directing more funds to reduce debt and invest in attractive commercial products and enabling technologies.
  • Fifth, we are making solid progress on a debt refinancing which we expect to close before the end of our first fiscal quarter. We believe the refinancing will provide good flexibility as we strengthen the balance sheet and execute our strategy."

Teske concluded, "There is no question that fiscal 2019 was enormously difficult from both a market perspective and our execution on operational excellence. Still, the several foundational changes we implemented advanced our commercial growth and diversification strategy and position us well for the long term. We remain confident in our strategy and view fiscal 2020 as an opportunity to get back on track."

In terms of the 2020 outlook the company says net sales are expected to be within a range of $1.91 billion to $1.97 billion for fiscal 2020, which contemplates midpoint growth of approximately 5.5% over fiscal 2019's performance.

This outlook compares with the company's previous preliminary expectation of approximately $2.01 billion in sales for fiscal 2020.

The revision to the outlook principally relates to the lower base sales for fiscal 2019, a reduction in the company's estimate of the North American market due to near-term disruption caused by channel partner transitions and the prolonged impact of weather on Europe, which has experienced hot and dry conditions in the early months of summer

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