Continued high growth in commercial turf and lawn care, commercial job site, and commercial engines was offset by softness in residential sales.
However, quarterly gross profit margin of 21.3% increased from GAAP gross profit margin of 18.7% and was consistent with adjusted gross profit margin of 21.4% last year, as an improved product mix and manufacturing efficiencies offset the impact of lower volumes.
Looking ahead to fiscal year 2018, the company expects to see EPS of $1.31-1.48, which easily falls short of expectations.
However, factoring out the absence of hurricanes, higher expected ERP upgrade costs, higher expected interest expense and a change in tax rate, the midpoint of the earnings range shows growth for fiscal 2018 of approximately 25% compared to fiscal 2017.
On the top line, the company expects full year sales to be $1.87-1.92 billion, which falls in-line with expectations. Annual revenue growth is projected for growth of 4.5% to 7.5%. Projections reflect modest market growth assumptions plus a return to more normalized channel inventories.
Operating margins before business optimization costs are expected to be approximately 5.6% to 5.8%. And compared to fiscal 2017, operating margins are expected to improve due to favorable sales mix from growth of commercial products, product margin expansion and operational efficiency improvements.
The company said, "During the year, we delivered strong sales growth in commercial products and commercial engines to gain share and improve gross profit margins. New, innovative products, with the features our customers want, also contributed to profitability and our success in maintaining our leadership position in engines. Lower-than-expected shipments of residential outdoor power equipment and engines resulted from certain North America channel partners making unexpected changes to their merchandising and inventory stocking levels during the spring selling season compounded by regional pockets of suboptimal growing conditions. We have observed improved growing conditions throughout the season but continue to see a cautious approach to reordering as channel partners have focused on controlling inventory to abnormally low levels. Looking ahead, we remain optimistic about the future, as reflected in the outlook for fiscal 2018, as well as today's announcement of our business optimization program, which will drive further advancements in operational excellence and provide capacity for the production of high-growth products."
Business Optimization Program Announcement:
In addition to quarterly and full-year financial results, today the company announced the launch of a business optimization program that is designed to drive efficiencies and expand capacity in commercial engines and cutting equipment. The program entails expanding production of Vanguard commercial engines into the company's existing large engine plants, which are located in Georgia and Alabama, and expanding Ferris commercial mower production capacity in a new, modern facility which is located close to the current manufacturing location in New York.
The company projects that the business optimization program will generate $30-35 million of annual pre-tax savings, in addition to supporting profitable commercial growth. The company estimates the savings will be achieved over a three-year period beginning in fiscal 2019. Total pre-tax expenses related to the business optimization program are expected to be approximately $50-55 million, of which $24-28 million is expected be recognized in fiscal 2018.