Briggs & Stratton Corporation (BGG)
F3Q10 Earnings Call
April 22, 2010; 10:00am ET
Todd Teske - Chief Executive Officer
Chief Financial Officer
Dave Rogers - Vice President of Finance
Mark Rookie - Longbow Research
Sam Darkatsh - Raymond James
Annette Borland - Personal Securities
Craig Kennison - Robert W. Baird
James Bank - Sidoti & Company
Mike Hamilton - RBC
John Barlow - Weiss
Brad Safalow - PAA Research
Dax Vlassis - Gates Capital Management
Previous Statements by BGG
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Welcome to the Briggs & Stratton third quarter earnings release conference call. At this time all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions)
I would now like to turn the call over to your host James Brenn.
Good morning everyone. As introduced, I am Jim Brenn, CFO; and with me today is Todd Teske, our Chief Executive Officer; and Dave Rogers, our Vice President of Finance.
Today’s presentation and our answers to your questions will include forward-looking statements. The statements will be based on our current assessment of the markets we operate in and actual results could differ materially from any stated or implied projections due to changes in one or more other factors as described in our filings with the SEC.
This conference call will be made available on our website approximately two hours after the end of the call, and a phone replay will also be available within a few hours of the completion.
Now here’s Todd to comment on our third quarter results and outlook for the rest of the year.
Thanks for joining us this morning. As you saw in this morning’s press release, we reported third quarter consolidated net sales of $695 million, an increase of 3% from the net sales in the third quarter of last year. Third quarter consolidated net income was $24 million, a decrease of approximately $1 million from the prior year. However, as pointed out in the press release, the current year’s result includes a pretax charge of $31 million to recognize a previously announced litigation settlement.
Adjusting the consolidated net income for the litigation settlement results an adjusted net income of $43 million, an improvement over last year’s third quarter results of approximately $17 million and is a better indication of the improvement achieved in operations on a year-over-year basis. I’ll discuss the improvements in my following comments on our operating segments.
Engine segment sales for the third quarter were $499 million, $19 million more than last year, and basically accounted for the majority of the consolidated net sales increase. In engine unit volume increase that was primarily the reason for the sales improvement, it appears to be the result of units being moved from our second fiscal quarter, into the second half of the fiscal year.
We discussed this timing shift in January when we believed that OEMs and retailers had tightened inventory controls and appeared ready to chase demand in the spring selling season. Through nine months engine units are approximately 500,000 less than they were last year for the same period. We believe that full year shipments will end up 350,000 to 450,000 units less than fiscal 2009.
The single largest factor contributing to the full year decline is almost 200,000 fewer engines for portable generators due to a lack of hurricanes in fiscal 2010. Softer demand from European OEMs caused by inventory over hangs from 2009 is the next largest factor contributing approximately another 100,000 units to the projected decline.
As of today the lawn and garden market in the US appears to be very active. Because of this year’s weather pattern the spring retail season is starting almost simultaneously in both the southern and northern markets. This weather pattern, combined with our earlier decisions to chase the season has resulted in retailers moving orders forward to address the surge in retail demand. However, at this time it is unclear whether the market is growing more than was originally anticipated, or we are simply seeing a change in the timing of demand.
Third quarter income from operations for the engine segment was reported as $44 million, a decrease from the $47 million for the same period a year ago. As pointed out in the press release, adjusted income from operations is $74 million without the litigation expense that was recognized in the third quarter. This adjusted income from operations improvement over the prior year reflects lower commodity costs, the impact over ongoing cost reduction programs in the manufacturing area, and lower utility warranty and transportation costs.
Certain commodity costs are increasing, but we have hedged a significant portion of our commodity purchases through the reminder of the fiscal year, and we should continue to see the year-over-year benefit of our cost reduction programs, and the improvement in certain variable cost categories.
Power product segments net sales for the third quarter was $245 million, slightly less than the $250 million experienced in the same period a year ago, while our replenishment of portable generators from storm related events was the major factor in the lower revenues. While we experienced a higher unit volume of shipments in other power product categories, the mix of shipments was skewed to products with average selling prices that were lower than those for portable generators.
Our shipments of premium and commercial lawn and garden equipment that is sold through our new organization was also softer than last year’s third quarter, as some dealers chose to forego opportunities to get volume discounts, as they appeared to remain cautious about their inventories ahead of the spring retain season.