Briggs & Stratton (BGG) Q2 2020 Earnings Call Transcript

Briggs & Stratton (BGGS.Q)
Q2 2020 Earnings Call
Jan 30, 2020, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the analyst earnings call. [Operator instructions]. Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your host today, Mark Schwertfeger.

Thank you. Please go ahead, sir.

Mark Schwertfeger -- Chief Financial Officer

Good morning, and welcome to the Briggs & Stratton fiscal 2020 second-quarter earnings conference call. I'm Mark Schwertfeger, chief financial officer; and joining me today is Todd Teske, our chairman, president, and chief executive officer. Today's presentation and our answers to your questions include forward-looking statements. These statements are based on our current assessment of the markets in which we operate.

Actual results could differ materially from any stated or implied projections from changes in one or more factors described in the safe harbor section of today's earnings release, as well as our filings with the SEC. We also refer certain non-GAAP financial measures during today's call. Additional information regarding these financial measures, including reconciliations to comparable U.S. GAAP amounts is available in our earnings release issued today and in our SEC filings.

This conference call will be made available on our website or by phone replay approximately two hours after the end of this call. Now here's Todd.

Todd Teske -- Chairman, President, and Chief Executive Officer

Good morning, everyone, and thank you very much for joining us today. This morning, in addition to reporting our quarterly financial results in our earnings release, we commented on our significant initiative to more fully analyze the dynamics of our markets with outside perspective. Before offering our commentary on the quarterly results, I would like to discuss in more detail our market study initiative, the key takeaways and our path forward. As I explained in August, when we first announced the initiative, the scope of the project encompassed the impact of current and future market conditions, including the impacts of technology and channel shifts on our business.

Clearly, the residential lawn and garden market, where the company has historically held a strong position, has been and remains very challenging. Trends in the U.S. housing market, technology shifts and dislocations in the OEM and retail channel participants are some of the secular headwinds affecting our business today. Also, certain offshore power providers, which we believe are supported by unfair trade practices, are impacting our ability to capture the value we provide to the market.

Despite these challenges, Briggs & Stratton remains the No. 1 power provider for outdoor power equipment in the world. We have leveraged our power application capability to build strong momentum and deliver demonstrated value to commercial markets, where we have seen solid growth and share gains over the last several years. We believe our core competency of applying power will extend alternative power technologies, such as commercial battery packs, where we've made investments in product development over the last few years and are now at the beginning stages of commercialization.

To better assess the impact of these changes, we engaged in an outside firm to help us take a careful look at end markets where we currently participate, along with potential new markets where we believe we can create value through our capabilities and competitive advantages. The primary conclusion from the project was the need for greater focus on our core strength of power application to enable us to maximize our ability to drive improved profitability, simplify our business model and extend our leadership in power application. An important aspect of our analysis revolved around our right to play and ability to win outside of our traditional markets. Recent activity has given us confidence that we can create value in markets where we have not significantly participated historically.

We have seen success with our Vanguard commercial engines across many applications and industries, including construction, infrastructure and leisure, and expect further momentum as we launch new products in the near future. Also, our new Vanguard commercial battery pack, which we introduced earlier this year has generated considerable attention and positive feedback from a broad range of potential customers in industries that go well beyond lawn and garden. As part of the work performed, we evaluated the breadth of our offerings in related markets. We have had success in building products, brands and markets, particularly in commercial applications.

Our success, however, has also created complexity that can, at times, limit our ability to compete effectively and develop certain attractive long-term opportunities. Accordingly, simplification and focus are necessary to properly execute on the significant opportunities we see in the foreseeable future. These key elements led to an action plan that we will be finalizing over the next few weeks. The plan will include streamlining our portfolio to create a sharp focus on our core competency of power application.

It will result in certain asset sales to enable the sharper focus to take place, as well as play a meaningful part in rebuilding our financial flexibility. We are actively working with investment bankers to assist with the asset, though with the sale of assets. Streamlining our portfolio and focusing on power application will enable us to better balance our cost structure to improve resource allocation and to fund new growth opportunities. We have already taken action to implement the plan by making the decision to suspend the dividend to strengthen the balance sheet and provide additional funds while we finalize and execute the plan.

The board will evaluate whether to restore the dividend at a later date. We intend to offer more details regarding our portfolio actions in our go-forward business plan later this quarter in a dedicated investor call. At that time, we will provide specifics on how we will reposition the company to be firmly anchored around our core competency of power application, where we have a strong competitive position and right to play; to deliver top-line growth over time in expanding markets; to deliver attractive returns on invested capital; and to maintain a position of strong financial flexibility. Shifting to the second-quarter results.

Sales and earnings fell short of our expectations. For the quarter, much of the sales decline was anticipated, as OEM customers shifted production closer to the peak season. We also experienced, however, unexpected softness in sales of job site products and lower lawn and garden mower sales in the quarter. The declines overall were market-related, as we maintain share in key markets and clearly gained share in targeted sectors, including commercial turf and commercial engines.

The decline in profitability was almost entirely related to the lower sales volume, including the plan to reduce manufacturing activity to position the company for accelerated inventory reduction during the second half of the fiscal year. As a result of the second-quarter results, and an incrementally more cautious outlook for the second half of the year, we also announced today a wider guidance range for fiscal 2020 sales and earnings. In North America and Europe, customers are signaling a more conservative approach to their ordering for the upcoming season. These factors have the potential for shifting some sales to beyond the end of our fiscal year-end in June.

In addition, the wildfires in Australia are affecting the current growing season there, and higher shipping costs at our unconsolidated affiliate associated with the rebuilding dealer inventories also had a negative impact on performance. Even within this environment, we continue to make solid progress toward meeting our operational goals, which gives us confidence in capturing our targeted efficiency improvements this year. Across our business, we have solidly positioned the company to meet customer needs during the upcoming peak season. Now here is Mark to walk you through the financial results for the second quarter of fiscal 2020.

Mark Schwertfeger -- Chief Financial Officer

Thanks, Todd. For the quarter, consolidated net sales were $438 million or $68 million less than the second quarter of last year. Engine sales in the quarter were largely on track with expectations. We had anticipated that engine sales will decrease by 20% from last year's second quarter, as the brand transitions at retail caused channel partners to order earlier than normal last year.

Product segment sales fell short of our expectations due to lower job site product sales and timing of lawn and garden dealer shipments. These factors caused total commercial sales in the quarter to decline approximately 4%. However, we continue to forecast strong growth of commercial offerings in fiscal 2020. The second-quarter consolidated adjusted net loss was $8.1 million, compared with the adjusted net income of $8.4 million we reported a year ago.

This year's adjusted results exclude pre-tax charges of $9.6 million primarily related to the consolidation of our small engine manufacturing facilities. The Engines segment incurred $8.7 million of the current year charges. The Products segment incurred $857,000 of the charges. Of the total charges, approximately half, or $4.6 million, were cash charges.

The second-quarter loss was greater than expected, almost entirely because of the lower sales volume and lower equity and earnings of unconsolidated affiliates. We expected lower profitability overall in the quarter this year due to planned reductions in production volumes as part of our program to reduce inventories by year-end. Equity and earnings of unconsolidated affiliates trailed expectations. Our service parts distribution business incurred elevated shipping costs to correct dealer parts back orders, which we caused from our reduced service parts throughput last fiscal year, partially offsetting the shortfall in earnings was lower-than-planned ESG&A spending due to timing of spending.

Sales in our Engines segment for the second quarter were $219 million, down 19% from $272 million last year. The decline is substantially due to the expected shift by OEMs in the timing of orders related to residential mowers compared with last year, when shipments were accelerated for brand transitions. Engine unit shipments decreased by 24% or approximately 453,000 engines from the second quarter of fiscal 2019. Commercial engine sales decreased slightly due to the timing of shipments and changes in foreign currency also had a small negative impact on sales.

Higher sales of service parts from improved throughput of operations this year partially offset the decrease in sales. Engines' adjusted gross profit margin declined 230 basis points, largely on the lower volumes produced. Engine production volume was approximately 1.4 million units, down approximately 320,000 units or 19% from the second quarter of fiscal 2019. Savings from our business optimization program, increased profit by approximately $2 million, which had a 90-basis-point favorable impact on margin.

Total engine inventories at the end of the quarter were approximately 1.8 million units, which is down 228,000 units from 2.1 million units at the end of the second quarter of fiscal 2019. Total inventory dollars are up from last year due to elevated levels of components related to the project to consolidate small engine production. Product segment net sales for the second quarter were $242 million, which was down 5% or $13 million from last year. The decline was mostly attributed to lower sales of pressure washers, portable generators and job site products.

Sales of pressure washers were down largely due to timing as compared to a year ago at this time when retailers were ordering earlier than usual, associated with the Craftsman brand transition. Storm-related sales of portable generators were down as a result of lower storm activity this year compared to last year, as expected. Our non-CARB or 49-state compliant portable generators could be offered for sale in California through the end of calendar 2019. However, fewer power outages from less windy conditions muted sales and retailers restricted shipments into the state, knowing that the product had to be removed from the market at the turn of the calendar year.

We remain encouraged, however, by the healthy growth in standby sales to customers in California, where we invest in to capture the developing opportunities in this newer region for standby power generation. For fiscal 2020 to date, sales of standby generators in California are up over 300% compared to the first half of fiscal 2019. We have doubled the number of dealers in the state, and we continue to recruit more, supported by training classes and dedicated personnel in the area. While working off a small base, we continue to recognize the long-term growth potential for standby in California, as well as other regions in the U.S., and will continue to support the Briggs & Stratton brand in this product area.

We also are very pleased with the continued sales growth of commercial mowers and turf care products. Professionals are relying more and more on the quality and benefits of our Ferris and Billy Goat products that get the job done. The Products segment adjusted gross profit margin was 14.7%, compared with 15.1% a year ago. The 40-basis-point margin decrease was principally due to reduced manufacturing volumes to control inventory levels.

Turning to the balance sheet. Inventories totaled $612 million at the end of the second quarter, unchanged from the end of the first quarter. Inventory was slightly higher than what we had anticipated due to the shortfall in sales during the quarter. As a reminder, the second quarter is typically the seasonal high for inventories, which will decline as we move through the peak selling season of the second half of the year.

We remain on track to reduce inventories to approximately $400 million by the fiscal year-end. Net debt at the end of the second quarter was $581 million, compared with $476 million last year. At the end of the quarter, we had $428 million drawn on our revolving credit facility, which represented approximately 81% utilization of the total amount available for us to borrow against as of the end of the quarter. Under the new facility, total borrowing availability will differ each month based on the underlying asset base.

We have yet to include all of our owned real estate in the borrowing base. We expect to include additional real estate in the third quarter, which will add approximately $15 million to our total debt availability. The new facility contains a springing fixed charge coverage ratio covenant, which is calculated quarterly based on the trailing four quarters. The financial covenant only applies when there is less than 12.5% or $50 million of unused capacity on the facility.

Based on the second-quarter covenant calculation, the fixed charge coverage ratio was less than one to one. Therefore, if availability on the facility were to fall below 12.5%, we would not be able to comply with the covenant. Accordingly, we have secured an amendment to the credit agreement that provides additional debt capacity through the end of our third quarter. Through this period, when our seasonal borrowings peaked, the amendment raises the threshold for the springing covenant to be tested if there is less than 7.5% or $30 million of unused capacity on the facility.

Subsequent to then, the springing covenant threshold returns to 12.5% or $50 million. By the end of the third quarter, and through the summer months, we expect the utilization of our facility to be well below the springing covenant threshold. The amendment to the credit agreement contained an upfront fee, a new pricing grid level and additional payment condition restrictions. We appreciate the support from our bank group and are confident that the amendment provides the needed debt capacity in the coming months as we begin to enter the period of the year in which we generate strong cash flows to reduce debt.

During the second quarter, we conducted productive discussions with our advisors regarding options to address the upcoming maturity of the senior notes in December. Based on these discussions, we are confident in our ability to raise additional capital to address the maturity. During the third quarter, we intend to pursue options to raise debt in tandem with our path to sell assets. We believe that the asset sales could be sufficient to address the upcoming maturity.

However, we will not solely rely on that. Regarding the current lawn and garden environment, we estimate that U.S. retail inventories of mowers are modestly below historic levels for this time of year, primarily due to Sears. Sears' replenishment of inventory following their bankruptcy filing was very low.

We expect that the change in retail landscape will begin to accelerate the velocity of replenishment during the spring season. We also believe that the fall sell-through at U.S. retailers trailed expectations, given somewhat dry conditions in the Southeast. We estimate that European lawn and garden channel inventory remains elevated after the recent summer of hot and dry weather across much of Northern and Central Europe.

OEM customers have been cautious about ordering, following consecutive years of poor growing conditions. Lastly, we believe that our U.S. dealer channel inventory is at normal levels to support the planned shipment of commercial products for the upcoming season. Regarding placement for our upcoming season, I'm pleased to report that we maintained our industry-leading engine placements at the major retailers for the upcoming season.

This is consistent with our expectations at the outset of fiscal 2020 and positions us well to serve in the market. Before I turn the call over to Todd for his closing remarks, let me comment briefly on our outlook for the remainder of fiscal 2020. Given the more cautious outlook, we are reducing the lower end of our guidance range for both sales and earnings. For sales, the lower end of the forecast range is $1.83 billion, a decrease of 4%.

We are maintaining the upper end of our guidance range at $1.97 billion. As a result, the midpoint of the range is now $1.9 billion, down from $1.94 billion, and contemplates full-year sales growth of approximately 3.5%, compared with the previous 5.5% growth outlook. The change reflects heightened uncertainty due to cautious ordering patterns we expect by global residential channel partners. In North America, it is increasingly possible that sales shift beyond our fourth quarter due to retailers placing late reorders to satisfy customer demand related to the Sears transition.

In Australia and Europe, the difficult weather conditions could similarly shift sales beyond fiscal 2020. We expect the market softness for job site products to abate in the back half of the year, as we're encouraged by recent activity in the new calendar year. However, we anticipate full-year job site sales to trail our previous outlook. More than offsetting this reduction, we are very encouraged by the full-year outlook for our standby and commercial turf businesses, both of which are now expected to exceed previous outlooks.

The outlook for adjusted net income is now in a range of $0.05 to $0.33 per diluted share, compared to the previous guidance of $0.20 to $0.40. The revised earnings guidance contemplates lower income from unconsolidated affiliates due to higher-than-expected freight costs in distribution to reduce dealer back orders caused by our throughput challenges last year. In addition, interest expense for the full year is now expected to be $35.5 million, compared with the prior expectation of $34 million. The increase is associated with the amendment to our ABL credit agreement.

We project breakeven to slightly positive free cash flow in fiscal 2020, which contemplates improved profitability, lower cash charges on the completion of the business optimization program and sizable reductions in inventory and accounts payable balances compared to last year. Regarding the third quarter, we expect consolidated net sales to be down approximately 8% to 10% from last year's third quarter, with the decrease predominantly related to residential engines. Due to the factors I mentioned previously concerning the retail transition in the U.S., as well as recent seasonal weather challenges, we expect channel partners to shift orders to closer in the season this year. Our U.S.-based manufacturing is fully capable of supplying engines on these relatively compressed time frames.

We expect third-quarter gross margins to be slightly improved from last year due to efficiency improvements and favorable sales mix and growth of commercial offerings. Partially offsetting the margin improvement is our plan to reduce engine production in the third quarter by nearly 450,000 units or 25% to help ensure that we achieve our planned working capital reduction goal for the year. We anticipate third-quarter ESG&A costs to be higher than a year ago by 12% to 14%, predominantly due to higher incentive compensation costs. Last year's ESG&A costs benefited from a reduction in the incentive compensation reserve.

Interest expense is expected to be $11.5 million in the third quarter, which includes the credit agreement I mentioned. Let me turn the call back over to Todd for some closing remarks.

Todd Teske -- Chairman, President, and Chief Executive Officer

Thanks, Mark. As you can gather from Mark's comments, we expect the fourth quarter to be much more of an active shipping period this year than historical patterns would indicate. You'd be assured we will be well-positioned to meet customer demand. Before concluding the call, I want to provide you an update on each of our five objectives we set out in August.

I am pleased that we continue to make solid progress toward achieving operational excellence. First, as I mentioned, we remain on plan to realize our goal of achieving operational efficiencies and generate value from our business optimization program. At this halfway point in the year, production of our Vanguard engines, which we brought onshore last year, remains at a high level at both our Statesboro, Georgia and Auburn, Alabama plants. Demand is strong for our innovative engines, which are winning the marketplace by delivering superior performance.

At our Ferris commercial mower production facility in upstate New York, we made meaningful progress in improving throughput. As of January, production costs are lower and daily production volumes are up. While still slightly below our desired employment levels, we are making good progress on this front and are well-positioned to meet demand. Likewise, our service parts distribution business is back to performing at industry-leading levels.

Throughput remains strong. During the second quarter, we invested in labor and resources to rebuild finished inventories, which are now at normal levels for this time of the year. As we move into the second half of the year, we are both well-positioned from a shipping point of view, as well as able to lower labor cost by reducing the use of temporary contract workers as planned. While our U.S.

distribution channel partner incurred some additional inefficiencies in the quarter, doing so is important to ensuring that dealers are well-positioned to service our products during the upcoming busy shipping season. Moving to our second area of focus. Our project to consolidate small engine production is on plan. Last week, we ceased assembly on the second of two production lines at our facility in Murray, Kentucky, where we will transition component production following the peak selling season.

The corresponding ramp-up of production at our Poplar Bluff, Missouri plant has been smooth. Project costs remain on track, and we are on target to recognize at least $10 million in pre-tax cost savings in fiscal '21, an upwards of $14 million in total savings by fiscal 2022. As described earlier, our third focus area to more fully analyze relevant market dynamics with the perspective of an outside consultant, is now complete and was a very important and productive exercise. Fourth, we remain encouraged by our plans to improve working capital.

We are firmly committed and well-positioned to reduce year-end inventories by $100 million from the fiscal 2019 level of $502 million. Finally, fifth, we completed the financing of our revolving credit agreement. With this flexible base now in place, we will explore additional funding opportunities to give us optionality as we approach the maturity of our senior notes in addition to asset sales. Suspending the dividend further supports our efforts to improve the balance sheet.

As we move to the back half of the year, we are confident in delivering improved operating performance. Our team has worked hard to restore operational excellence, while also devoting substantial attention to the initiative to analyze our markets and deliver a go-forward plan to reposition the company for a brighter future. We have also made great progress in developing significant new products, including our Vanguard commercial battery packs and Vanguard commercial horizontal engines, both of which will extend our leadership as a recognized provider of power to get work done. We are excited for our path forward.

We've built great assets. We are going to use those assets to focus the business on a brighter future. I'd like to wrap up the prepared comments with a message to those in Murray, Kentucky. First, to all the people who are part of our team, words cannot express our appreciation for all you have done for Briggs & Stratton.

Many of you spent years, if not decades, building great engines that were needed by people around the world. Into the broader community in Murray, your support over the decades was always the best and will forever be appreciated. I am proud of what was accomplished in Murray, and we are proud that all of you were part of the Briggs & Stratton team. That concludes our prepared comments.

Thank you for listening. We'll now open the call up for questions.

Questions & Answers:

Operator

[Operator instructions] And we have our first question from the line of Joe Mondillo. Your line is now open.

Joe Mondillo -- Analyst

Hi, guys. Good morning.

Todd Teske -- Chairman, President, and Chief Executive Officer

Good morning.

Mark Schwertfeger -- Chief Financial Officer

Good morning, Joe.

Joe Mondillo -- Analyst

So just to start with the market dynamics project, you mentioned that you're going to be focusing on power application, your strength, at the same time, looking at opportunities for asset sales. Could you help us just understand the direction you're going? Because it sounds like focusing on power application means that you're focusing a little more on engine, and does that mean the asset sales comes out of products? And then at the same time, can you address sort of the magnitude of asset sales? Or how aggressive are you going to be at trying to divest some of the portfolio?

Todd Teske -- Chairman, President, and Chief Executive Officer

So Joe, I'm not going to get into a lot of specifics. You, unfortunately, are going to just, perhaps, have to wait until we have the investor call here in several weeks. I think we said in the press release, four to six weeks out, we'll give you a lot more specifics because we're working through the plans now. Here's what I will tell you.

As we worked our way through the market dynamics project, what's interesting is, to me, over the last several years, there's been more and more opportunities that have now presented themselves to our company. When you look at the focus we've had on commercial over the last seven, eight, 10 years, whatever it's been, and you look at now the success that we've had in some of these areas, it's allowed us the opportunity now to open up other markets. So battery packs, things like that. So as we looked at the project, we stepped back and we said, OK, we have resources.

There are certain things that perhaps aren't going to grow as much as others, and so what will we do with that? And then there's other opportunities that are out there, some of them existing, some of them new where we now want to say, well, what kind of resource requirements are needed? And then you kind of -- as I mentioned in the prepared comments, what's happened over the last several years is that as we've had success, it does create some complexity. And so what we want to do then is also simplify our business and our business model, which will allow us the opportunity then to rightsize the cost that's associated with supporting the business. So Joe, sorry, we're not in a position today to give you a bunch of specifics or anything like that. But with that as a backdrop, I would ask that you be aware that we'll talk about this here in several weeks, and we'll give you more specifics at that point in time.

Mark Schwertfeger -- Chief Financial Officer

And the only other thing I would add is we did comment that the magnitude of the asset sales could exceed the upcoming maturity, which is $195 million.

Joe Mondillo -- Analyst

OK. In terms of the engine placement, I guess, that was positive to hear that nothing's really sort of changed compared to past years. What about the big box retail placements of the OEMs that you're selling into? Do you have any indication if that's changed at all and how much?

Todd Teske -- Chairman, President, and Chief Executive Officer

So stay tuned for the lineups now to be shown by the retailers as they work their way through. I would tell you, as you know, Joe, that I think it's maybe what you're alluding to is that Husqvarna has stepped away from major chunks of the market. Obviously, MTD is still there, but I would also expect that you will see Briggs-powered units coming from other OEMs that maybe haven't participated as heavily in the market in the past. But that's why it's been important for us to make sure that our placement remains intact.

But ultimately, we're not in a position to comment either by OEM or by retailer. But you can expect that there will be a little bigger presence from some others that maybe weren't as prevalent in the past.

Joe Mondillo -- Analyst

OK. And then just in terms of the channel inventories, I think -- correct me if I'm wrong, you stated that inventories in the channel on the retail side of things are actually a little lower-than-expected because of the lack of restocking at Sears, at least in the U.S. But you said that your sales in the quarter that you just reported we're lower than expected partially due to inventories being high. I thought that was sort of -- I don't know if that was a contradiction or -- I'm just trying to understand or clarify how you're seeing the inventories in the channel headed into the seasonal period.

Todd Teske -- Chairman, President, and Chief Executive Officer

Yeah. So let me just unpack a little bit. Inventory. So the inventories at retail as it relates to lawn and garden, for example, that's what we're alluding to is they're not lower than we expected.

We expected them to be down because Sears is no longer stocking. And I wouldn't expect the remaining players to stock more in inventory, they're going to stock what they normally would stock, and therefore, you're going to have substantially more velocity, we believe, going through in the season because the market will adjust. I mean some of the dislocations that happen from the market are still working their way through, especially here in the early season. When you look at where sales were off a bit as it relates to the quarter, they were softer than we had anticipated in job site, and they were softer than we had anticipated in some of the dealer channel.

So you have to kind of bifurcate them to -- and it's a good clarity on the different aspects of where the channel inventories really are.

Joe Mondillo -- Analyst

OK. And then on your commercial business, could you tell me what your commercial sales did in the quarter itself, again? I think I missed that.

Mark Schwertfeger -- Chief Financial Officer

Down 4% from last year's quarter. And that was mainly due to the job site products.

Joe Mondillo -- Analyst

OK. And can you hash into that? I think you did mention that your commercial mowers and turf care were positive. You said that your commercial engines declined slightly. So excluding job site, it seems like your commercial business, even excluding the job site, has actually slowed pretty considerably, compared to four, five, six quarters ago, where you were growing in the double digits.

Could you just sort of talk about what you think is going on there? And if this is all market-related or something else?

Mark Schwertfeger -- Chief Financial Officer

No. I would say that it's more a factor of timing as it relates to the engine sales. And even a little bit of the turf sales in the quarter, which, obviously, the December quarter is kind of an off time to ship in for the upcoming season. But overall, we still anticipate some strong growth in commercial Vanguard engines on a full-year basis, and very strong growth on the commercial turf products as well.

In fact, we commented that we actually now see the commercial turf business being stronger than we thought a quarter ago as we look forward to the full season. And then the job site sales, we saw really slow down in December quarter, and we don't anticipate getting all that back. However, we did start to see a rebound in rental house capex [Audio gap] we do see that the slowness that we saw in the last calendar quarter of the year start to abate and to pick up the job site sales again.

Todd Teske -- Chairman, President, and Chief Executive Officer

With the rental show coming up here in a week or two, there's a bit of optimism going into the show. So we'll see how the show ultimately transpires.

Joe Mondillo -- Analyst

All right. And just a follow-up regarding that question. If you take out job site, because I imagine job site probably did drive the growth up into the double digits a year or two years ago. If you take that out completely, where is your commercial business trending in terms of growth now, compared to, say, a year, 18 months ago?

Mark Schwertfeger -- Chief Financial Officer

I'd say very strong. And we have brighter prospects, especially related to our new Vanguard horizontal engines, which we've actually accelerated some of the product development time line that's going to allow us to address that $1 billion market, that we have a very small place in right now. So we're very, very bullish about the Vanguard. And like I said, the Ferris has been growing well, too.

So even if you pull out job site, the growth of both engine and the turf together has been very high single digits, some low double digits over the last several years.

Joe Mondillo -- Analyst

OK, all right. Great. I'll hop back in queue. Thanks a lot.

Todd Teske -- Chairman, President, and Chief Executive Officer

Thanks.

Operator

And we have Tom Hayes. Your line is now open.

Tom Hayes -- Analyst

Thanks. Good morning, gentlemen.

Mark Schwertfeger -- Chief Financial Officer

Good morning, Tom.

Todd Teske -- Chairman, President, and Chief Executive Officer

Hey, Tom.

Tom Hayes -- Analyst

Hey, Todd, I was wondering if you can maybe give a little bit of a bigger description on the Vanguard battery pack, maybe capabilities and applications. It sounds like it's an interesting product.

Todd Teske -- Chairman, President, and Chief Executive Officer

Yeah. We're really bullish on that, Tom. And when you look at where the battery -- so we're positioning our battery pack roughly to be between 1 kilowatt-hour and 20 kilowatt-hour. So these are not little battery packs that would be used in power tools or anything like that, and they're certainly not the kind of batteries that would be used in a car.

And so when you look at that sweet spot, that sweet spot is where Briggs has historically played with the types of engines. And so when you -- we already signed up Argo, and had some nice, really nice work with them. They're a great company to work with. We got other things in the pipeline that we're not prepared at this point to share with you.

But there are some things that we're working through, and the attention that these batteries are getting, we're sending out lots and lots of samples, as you would imagine. And the really exciting thing to me is that it starts to open up areas, markets that we really haven't played in before. And so what you'll hear more in, when we have our investor call here in four, five weeks, whatever, six weeks, whatever it's going to be, you're going to hear more about these different types of industries. And I would tell you that the addressable market on some of these things are generally between $10 billion and $12 billion, and they're not focused just on turf.

Now that doesn't mean that we're going to go out and conquer all kinds of market share immediately because focus is really important. And so what you'll hear coming up in several weeks is the kind of focus that we'll have to make sure we're making the proper investments to monetize some of these things. But I would tell you that the battery pack we have has intellectual property around it. It's flexible in a way that you can upscale it or downscale it relatively easily, so that there are not a lot of production costs that are associated with it.

And really, when you kind of cut through it all, it plays in a power sweet spot, where this company has played for a long, long time.

Tom Hayes -- Analyst

Great. I appreciate the color. And then maybe secondly, Mark, you made some comments, I think, at the end of your prepared remarks regarding the generator sales in California. I know it's kind of a smaller piece of the business for you, but maybe discuss how you're thinking about that market developing over the next year or so?

Mark Schwertfeger -- Chief Financial Officer

Yeah, that's mainly on the standby side. We thought there might be a near-term opportunity with that temporary CARB exemption that was in place for November and December, but that ultimately didn't materialize into much -- or related to, thankfully, the winds went down and there were less outages. But I mean, if you think about the standby business, it tends to be more of a slower methodical sales process. And so what we've really been doing is working to build out some dedicated sales support and then build out our dealer base, as well as our other electrical wholesalers and distribution in the market in order to take our product and grow with the market.

We think that our placement there right now in market is generally in line with where we are across the nation from a market share perspective. But that market is low and growing. So yes, we're quite bullish about our opportunity.

Todd Teske -- Chairman, President, and Chief Executive Officer

Yeah. And Tom, when you think about building out that distribution is important, it really then becomes important on the battery side as well because we believe that, as you look forward, California is already down a path of solar and wind, and energy storage is really important. And so if you think about distributed energy storage being at the home, our battery applications will be well suited to be able to address all of that. And so California is important given the current infrastructure, current product and then it becomes even more important when you think about current infrastructure, current products and new offerings that are on the horizon.

Tom Hayes -- Analyst

Good. Appreciate the color. And just maybe just one last one. On the small engine manufacturing consolidation initiative, I know you guys called out the expectations for benefits in FY '21, but maybe just to hear your thoughts on any additional charges.

What do you see in the back half of this year?

Mark Schwertfeger -- Chief Financial Officer

Yeah, we believe the total charges in '20 will be around $15 million or so, and we incurred $6 million to date. And so we have a little bit more as we go into the back half of the year and start to wind down the rest of the plant operations.

Tom Hayes -- Analyst

All right. I appreciate it. Thanks for the color.

Mark Schwertfeger -- Chief Financial Officer

Thanks Tom.

Operator

Next question comes from Sam Darkatsh. Your line is now open.

Unknown speaker

Good morning. This is Josh filling in for Sam. Thanks for taking my questions.

Mark Schwertfeger -- Chief Financial Officer

Good morning Josh.

Unknown speaker

I wanted to go back to the questions about shelf space at retailers. There's an announcement made by Lowe's that they were going to start offering Honda equipment. And I was wondering if you could help us frame how that fits into the shelf space picture.

Todd Teske -- Chairman, President, and Chief Executive Officer

They did announce they're going to carry Honda. You will see some SKUs that get shifted a bit. But when we look at our placement overall, we're still in great shape with Lowe's, they're still a really important channel partner of ours. And so I would tell you that you generally would see some of the Honda stuff at the very high end.

And so ultimately, that's where some on the walk side, some of the SKUs will work their way through. But again, replacement-wise, we're in quite good shape with Lowe's.

Unknown speaker

Got it. And then as we think about the dynamics of the channel with Sears no longer in the picture, what gives you confidence that the channel will be able to serve at a higher velocity than it has had to in the past, if there's no change in inventory in the channel?

Todd Teske -- Chairman, President, and Chief Executive Officer

Well, I would tell you that over the last few years, the OEM and engine channel participants haven't been challenged at all because there's been inventory. If you go back in history, Josh, you'll find that there are situations where, within a week, like seven days, we will make an engine, it will go to an OEM, it will get out of the shelf at a retailer. This industry for the U.S.-based manufacturers is really in a position to serve the market quickly with high velocity which is why our plant, for example, for walk engines, in Poplar Bluff, we have inventory on hand as you can see from the balance sheet, we also have production capability that we can ramp it up, as well as many of our OEM channel partners who are in the U.S. And so this is where being U.S.-based in a highly seasonal environment industry is one where it's a real advantage to be able to serve the market in a very condensed fashion.

We expect that that ability is going to be tested this year. Our point of view is we're ready, and we've done it, we're ready. We haven't had to do it for the last several years, but we're here.

Unknown speaker

Great. Good luck with the next quarter.

Mark Schwertfeger -- Chief Financial Officer

Thank you Josh.

Operator

Next question comes from Tim Wojs. Your line is now open.

Tim Wojs -- Analyst

Hey, guys, good morning.

Mark Schwertfeger -- Chief Financial Officer

Good morning.

Todd Teske -- Chairman, President, and Chief Executive Officer

Good morning, Tim.

Tim Wojs -- Analyst

Maybe just going back to the market dynamics project, and I don't know if you can answer this now or if you'll kind of talk about it in a couple of weeks. But when you've done the analysis and you've kind of looked at your kind of current OEM customer base and maybe other outdoor power companies, how many of those have kind of internalized power application around batteries? And the reason I'm asking, just my concern, I guess, is that a lot of companies have maybe made some of these big moves already in some of these investments, and more of the batteries might be going into new customers and kind of new industries that I think might need more investment.

Todd Teske -- Chairman, President, and Chief Executive Officer

Yeah. So Tim, I would tell you that when you look at the kind of batteries, where battery packs we're not talking about battery packs that go on a small walk-behind lawn mower. A lot of that has already hit the market because it's an extension of the handheld. And if you look at handheld products, like string trimmers and blowers and things like that, a lot of that transition has happened, and now you're seeing some mowers on a come-along basis as well.

I'm not aware that there's others in the industry that have launched in a big way the kind of power application we're talking about, which is between 1 kilowatt-hour and 20 kilowatt-hours. And there's a few electric tractors that are out there, but they're incredibly expensive. We'll be in a position to be able to serve that market when the time comes. And if it comes sooner versus later, we'll be in a position.

But I would tell you that our focus is really on the commercial side, we believe that when you look at the ability to, for example, commercial mowing, to mow earlier in the day and get more productivity out of their labor force, that's where batteries will come into play. Now batteries may come into play in a hybrid solution, not a full electrified solution. Those are the kinds of applications in turfs that we're talking about. But on the flip side, I would tell you that there is these new and different markets that we're going after, some of which we've served historically in a meaningful way.

But there's others that are out there that we, I think, can penetrate pretty solidly. And so when you look at the investment that's needed, and if you were -- and again, we'll talk more about this here in a few weeks, but if you look at the investment we've made in our battery packs and in the battery management system, there is scaling that can go on, and there is customization that is important, and that's why our power application knowledge becomes really important. We're investing in the product. We'll continue to invest in our power application knowledge, but there's many people out there right now that are starting from ground zero on power application.

And so when you think about the investments, yeah. Will there need to be investments made? Of course, there will be. But as we look at it, the investment is reasonable and the returns, we believe, can be significant. And so I would tell you to stay tuned for a few weeks here when we talk, we'll have more on the whole battery pack.

But if you're concerned about the size of the investment, yes, we need to make an investment, but it's well within our planning horizon as we've thought about this as part of our market dynamics project.

Tim Wojs -- Analyst

OK. All right. That's helpful. And then maybe just on the guidance.

I just want to make sure I kind of have the quarterly cadence right. So I think it implies something in the ballpark of a mid-teens-type number on the revenue side to get to the low end of the guidance, and correct me if I'm wrong there. And then secondly, it does assume that you'll resume production in the fourth quarter or production growth, I should say?

Mark Schwertfeger -- Chief Financial Officer

You're talking specifically about the third quarter?

Tim Wojs -- Analyst

Fourth quarter, I'm sorry. Just the implied kind of Q3 to Q4. Because Q4, I guess, is seasonally going to be a very important quarter and more so than it probably has been in history. So I'm just trying to make sure I have the pieces right.

Mark Schwertfeger -- Chief Financial Officer

Yeah, you're right. From a sales perspective, it would imply that the sales would be up quite significantly from last year's fourth quarter as much as 30% up. When you think about last year's fourth quarter, it was very poor relative to an overall throughput with our efficiency challenges, as well as the seasonal developments. So we do anticipate quite a stronger fourth quarter.

And then the engine production, we expect to be more flat in the fourth quarter compared to a year ago, whereas the third quarter, we're taking it down quite substantially to get a jump-start on making sure we can get those inventories in line by the end of the year.

Tim Wojs -- Analyst

OK. And just to be clear on the message on the inventory at retail, so are the retail -- if you take out Sears, and just given kind of a lackluster kind of fall, kind of season end, is it that the other retailers have higher inventories and are going to work through those and basically have more velocity in season? Is that what you're trying to tell us? Or is that what you see?

Mark Schwertfeger -- Chief Financial Officer

That's exactly right, Tim. And that's why you see -- part of why you see the shift in the third quarter to the fourth quarter.

Tim Wojs -- Analyst

OK. OK, great. I appreciate the time. Thank you.

Mark Schwertfeger -- Chief Financial Officer

Thank you.

Todd Teske -- Chairman, President, and Chief Executive Officer

Thank you Tim.

Operator

We have a follow-up question from Joe Mondillo. Your line is now open.

Joe Mondillo -- Analyst

Hi, guys. Yeah, just a couple of questions. To follow-up on that last question, regarding the small engine consolidation footprint, what is the risk to the implied guidance for the fourth quarter just given such a small period of time that you're thinking that's how it's going to play out, given what you're doing and all the moving pieces related to the consolidation? What is the risk to the guidance there?

Mark Schwertfeger -- Chief Financial Officer

I think that's low. And it's more because we've derisked the program by phasing the move of that plant where we've now moved the assembly. And so the assembly of the engines is now consolidated in the new, or the Poplar Bluff, Missouri plant. And then the other actions are a little bit more behind-the-scenes to wind down the remainder of the component production and the like.

We also believe that we're well-positioned on finished inventory for those product categories, such that we are well set to respond to a strong demand in the back half of the year.

Joe Mondillo -- Analyst

OK. And do you anticipate production? I'm not sure if you answered this on the last question, I apologize if you did, but do you anticipate production to ramp up in the fourth quarter just to facilitate that? Or do you have enough inventory to not have to ramp up that much?

Mark Schwertfeger -- Chief Financial Officer

We expect overall fourth-quarter engine inventory production to be flat roughly with a year ago. And part of that is to help us with our goals of reducing inventory so we expect higher demand out the door, but similar production, whereas in Q3, we expect lower sales out the door and significantly lower production, which is why you see the margin challenge in the third quarter.

Joe Mondillo -- Analyst

OK. And a couple of just random housekeeping questions. The small engine consolidation expenses for the back half of the year, what are you anticipating for that?

Mark Schwertfeger -- Chief Financial Officer

Full year, roughly around $15 million or so, and we expect about a little over half of that in the back half of the year.

Joe Mondillo -- Analyst

OK. And then do you anticipate -- or what do you expect for capex for the year? And do you anticipate payables to ramp up in the back half like they normally do?

Mark Schwertfeger -- Chief Financial Officer

We expect capex to be around $55 million, consistent with previous guidance. And we would not expect accounts payable to ramp up like you saw last year with some of our implementation challenges, so we would not. And that's part of what offsets a little bit of the inventory reduction is a more normal AP balance. But if you remember that accounts payable, that was elevated last year, turned into debt right away going into fiscal-year '20.

We don't anticipate that to similarly happen as we go into fiscal '21, which positions us better on net debt.

Joe Mondillo -- Analyst

OK, great. Yes. So my follow-up question was going to be regarding the free cash flow, but I suppose if payables is going to be a little more flattish in the back half, that would probably explain it.

Mark Schwertfeger -- Chief Financial Officer

Correct.

Joe Mondillo -- Analyst

I had one other question, I thought. No, I think I'm all set. Thanks a lot. I appreciate you for taking my follow-up.

Mark Schwertfeger -- Chief Financial Officer

Thank you, Joe.

Todd Teske -- Chairman, President, and Chief Executive Officer

Thanks Joe.

Operator

We have a follow-up question from Tim Wojs. Your line is now open.

Tim Wojs -- Analyst

Hey, guys. Thanks for taking the follow-up. Is there a way to think -- just the trade case that you filed on the vertical-shaft engines a couple of weeks ago, or the inquiry, is there a way to think about -- or that we should think about in terms of the time frame of -- if that case gets taken up, and how we should think about it impacting your business?

Todd Teske -- Chairman, President, and Chief Executive Officer

Well, from a time frame, Tim, I would tell you that, there are several milestones that are achieved as you go through if the case continues on. I mean from beginning to end, it can be upwards of 12 to 13 months. But then, there's 45-day periods, 90-day periods, and I'm not going to profess to understand exactly the DOC versus the ITC and everything else. But suffice it to say, that as we move along, we are confident that we can be successful with this.

And how it impacts the market and what we're doing, all we want is a level playing field. Because I can tell you that what we see in the market is some things that, as I mentioned earlier in the prepared comments, there's some interesting trade practices that are being employed. And so what we want to do is make sure that we have a level playing field and that the industry -- and we get paid for the value that we bring to market. So I would tell you that it's nothing more than that.

It's just making sure that it's a level playing field across in the U.S., and that's why we did what we did.

Tim Wojs -- Analyst

OK. OK, I appreciate the color. Thank you.

Mark Schwertfeger -- Chief Financial Officer

Thank you.

Operator

And there are no questions at this time.

Todd Teske -- Chairman, President, and Chief Executive Officer

Great. Well, thank you for joining today's conference call. Our next quarterly earnings conference call will be in April. Prior to then, we will conduct an investor call to share more details regarding our plans to reposition the company.

The date for this will be published shortly. Have a great day.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Mark Schwertfeger -- Chief Financial Officer

Todd Teske -- Chairman, President, and Chief Executive Officer

Joe Mondillo -- Analyst

Tom Hayes -- Analyst

Unknown speaker

Tim Wojs -- Analyst

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