Briggs & Stratton (BGG) Q1 2020 Earnings Call Transcript

Briggs & Stratton (BGGS.Q)
Q1 2020 Earnings Call
Nov 01, 2019, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Adrienne, and I will be your conference operator today. At this time, I would like to welcome everyone to the analyst earnings call. [Operator instructions] Thank you.

I would now like to turn the call over to Mark Schwertfeger. Please go ahead, sir.

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Good morning, and welcome to the Briggs & Stratton fiscal 2020 first-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 due to changes in one or more of the factors described in the Safe Harbor section of today's earnings release, as well as our filings with the SEC. We also refer to 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. I'm pleased to report the results for the first quarter reflect encouraging progress across multiple dimensions of our business. During the quarter, we achieved what we said we would by improving fulfillment rates in our service parts business and increasing efficiencies in Vanguard commercial engine manufacturing. We generated strong dealer interest in our expanding line of Ferris Commercial Mowers and other professional turf management products, while also making positive strides in improving operations at our new manufacturing facility in upstate New York.

In addition, we completed a new revolving credit agreement to enhance our financial flexibility as we move to strengthen the balance sheet. First-quarter performance demonstrates real progress toward achieving operational excellence, and we are on plan to capture the $20 million in efficiencies targeted for this year. For the quarter, sales of $314 million were up 12% from a year ago despite shipping fewer storm-related generators on a year-over-year basis. Our adjusted loss for the period was $0.67 per share.

Commercial sales increased about 2%, and residential sales increased 18%. During the quarter, underlying market demand remained generally firm. In North America, fairly good growing conditions across much of the continent extended the grass growing season and supported strong double-digit sales growth in Vanguard Engines and Ferris Commercial Mowers, in which we continue to gain share. Job site sales declined year over year as customers in the rental channel were more cautious in ordering this year.

Despite this caution, we believe job site demand will rebound in certain categories during the remainder of the fiscal year. Sales of residential products benefited from higher service parts shipments on improved throughput in our distribution facility this year. In addition, approximately $15 million of sales have been shifted out of last year's first quarter in order to support the go-live of our ERP upgrade. Storm-related sales from Hurricanes Barry and Dorian were slightly above $10 million, compared with about $15 million from Hurricane Florence for the first quarter of fiscal 2019.

Sales of residential standby generators were also strong, and I will have additional comments on developing generator opportunities later in our prepared remarks. So overall, it was a solid start to the year, both operationally and financially. An important reason for this start is the substantial progress we've made on the five key focus areas I laid out in August to improve overall business performance and better position our company for the future. I'd like to provide an update on each.

The first focus area is to aggressively improve operating efficiencies and realize value from our business optimization program. At this point in the year, we are substantially on plan with the ramp-up -- with the -- with ramp-up of onshoring production of Vanguard commercial engines, and ramping up our new Ferris commercial mower production facility in New York, as well as improvements in our service parts distribution. While the majority of inefficiencies impacted the second-half financials last year during the peak shipping season, our goal is to make improvements in the slower first half of this year to position us for improved execution during the second half. Here are some examples of where we have been focused and how we have achieved improvements.

We made progress in improving throughput in our service parts operation. To put this into context, we shipped 30% more parts during the first quarter than a year ago, which is slightly higher than we had anticipated. Throughput at our distribution center increased over 100%. Our customer fill rates in Europe are now back to historical levels, and we are approaching similar levels in North America.

The improvements we've made thus far in this business have already positioned us for better fulfillment rates in the upcoming season as we return to our industry-leading performance. During the second quarter, we are continuing to invest to build kitted inventories to further prepare for the peak season. In Vanguard commercial engines, with sales up 10% for the quarter, production throughput at both our Alabama and Georgia plants continued to ramp following the onshoring of production last year from our Japan joint venture, which ceased production at the end of September. Importantly, we are now meeting or exceeding our targeted production and efficiency metrics, and we've added a second shift at our Alabama plant to meet growing demand.

The progress we made enabled actual units built in the first quarter to exceed our plan by a little more than 10%. At our new commercial mower facility in upstate New York, we also made progress in ramping up production. Operations improved from the fourth quarter of fiscal 2019 with lower downtime, lower over time and improved materials management as we progressed through the first quarter. To date, since the beginning of the fiscal year, we increased our production staff by about 15%, which was substantial, but about 60% of our goal.

The additions include several employees in welding and other skilled trades. The gap remaining in our overall staffing resulted in quarterly production falling short of our plan for the quarter. Nevertheless, we are encouraged by the progress we are making to reach our goal prior to ramp-up for the busy shipping season in the back half of the year. In September, we held the grand opening of the new facility and hosted over 400 dealers to showcase the new facility and our entire line of products.

The event was a success. We received a healthy amount of preseason orders across the full range of products, including our newly introduced zero-turn models, which incorporate our new suspension technology. Moving to our second focus area. Our project to consolidate small engine production is on plan.

This week, we ceased assembly on one of two production lines at our Murray, Kentucky, facility. During November, we will initiate increased assembly at our Poplar Bluff, Missouri plant. Reaching these milestones has us on track to fully transition engine assembly to the Poplar Bluff plant in the -- early in the third fiscal quarter. Project costs remain on track, and we remain on target to recognize approximately $10 million in pre-tax cost savings in fiscal '21 and upwards of $14 million of savings by fiscal 2022.

For the third focus area, our work is moving forward with an outside resource and more fully analyzing relevant market dynamics. With the significant changes that have gone on in the retail and OEM landscape for residential products and the significant opportunities in the commercial space, we expect this analysis will better enable us to be nimble and proactive in positioning the company to effectively compete and advance our strategy. We are making good progress, but we do not anticipate providing further commentary on this activity until it is complete. Fourth, we are encouraged by the plans in place to improve working capital.

As a reminder, our goal is to reduce inventories by $100 million from the fiscal 2019 level of $502 million. At the end of the first quarter, inventory stood at $612 million, which reflects the typical seasonal build, but is in line with our expected levels at this point in the fiscal year. As a result, we remain optimistic about reaching our targeted goal for inventories by the end of fiscal 2020 as the seasonal increase in shipments in subsequent quarters would facilitate inventory reductions. Finally, fifth, we completed the refinancing of our revolving credit agreement.

The new asset-based facility provides up to $625 million in borrowing capacity, subject to a borrowing base. It's an increase from the previous facility of $500 million and gives us the flexibility to fund seasonal borrowings and other needs. The larger size also provides a foundation for our capital structure as we look to ultimately retire our senior notes that mature in December of 2020. With this flexible base now in place, we will continue to explore additional funding opportunities to give us optionality as we approach the maturity of our senior notes.

In sum, we've made good progress across the spectrum and the areas of focus, and I appreciate the hard work of our employees to improve operations and strengthen the company's long-term success. Before I turn the call over to Mark, let me comment on the lawn and garden environment. We estimate that U.S. retail inventories of mowers are modestly below historical levels for this time of the year, primarily due to Sears.

We believe that Sears historically held substantially more inventory this time of the year compared to how much we estimate they are currently holding. Sears' replenishment of inventory during the past 12 months 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 estimate that European lawn and garden channel inventory remains elevated after a summer of hot and dry weather across much of Northern and Central Europe.

Although the weather was not as extreme as it was during the summer of 2018, we believe our OEM customers will order cautiously going into the upcoming season. Lastly, we believe that our U.S. dealer channel inventory is at normal levels to support the planned shipping for the upcoming season. Now I'll turn it back over to Mark to walk you through our financial results for the first quarter of fiscal 2020.

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Thanks, Todd. The first-quarter consolidated adjusted net loss was $27.6 million, compared with the $21 million adjusted net loss reported a year ago. This year's adjusted results exclude pre-tax charges of $6.4 million, which is a significant reduction from the $19.9 million of charges related to our business optimization program last year. The engine segment incurred $5.7 million of the current year charges, of which $4.8 million related to the engine manufacturing consolidation project.

The products segment incurred $700,000 of the charges. Of the total charges, approximately half were noncash. The first-quarter results slightly exceeded our expectations, included only modest support for storm-related shipments. We expected lower profitability in the first quarter this year due to residual inefficiencies from last year's business optimization program go-live, higher interest expense and a higher tax rate.

Of note, last year's first quarter included a nonrecurring tax benefit worth $0.07 per share. Sales in our engine segment for the first quarter were $133 million, up 12% from $119 million last year. Engine unit shipments increased by 11% or approximately 90,000 engines from the first quarter of fiscal 2019. Much of the increase in sales was due to higher service parts sales from the improved throughput in our service parts distribution center this year.

In addition, as a reminder, last year's first-quarter sales were low for engines and service parts sales as we had preshipped in advance of the ERP go-live. We also achieved 10% growth in Vanguard commercial engine sales. Partially offsetting the increase were lower sales into Europe due to elevated channel inventories. Slightly unfavorable foreign currency impacts offset increased pricing.

Engine's adjusted gross profit margins advanced 430 basis points, with a favorable sales mix accounting for the majority of the improvement, largely driven by a higher proportion of service parts revenue and growth in commercial engines. Savings from our business optimization program increased margins by 90 basis points due to progress in our onshoring of Vanguard engines and benefits from our upgraded ERP system. Unfavorable foreign currency impacts of about 70 basis points, partially offset the areas of improvement. Engine production volume was approximately 1.4 million units, up approximately 100,000 units from the first quarter of fiscal 2019.

Total engine inventories at the end of the quarter were approximately 1.9 million units, which is down 350,000 units from 2.3 million units at the end of the first quarter of fiscal 2019. Total inventory dollars are up due to having proportionately more large engines in the mix this year, as well as higher component inventory to support the onshoring of the Vanguard Engines and the small engine plant consolidation. Products segment net sales for the first quarter were $196 million, which is an increase of $22 million or 13%. We had favorable sales growth across multiple areas, including non-storm-related generators, Ferris commercial mowers, Victa mowers in Australia and service parts.

Partially offsetting the growth were lower sales of job site equipment, as Todd commented on earlier. The products segment adjusted gross profit margin was 13% versus 17.6% a year ago, which was in line with our expectations. The 460-basis-point decrease in margins was due to unfavorable sales mix, accounting for 160 basis points, predominantly within the portable generator category. Higher product costs, net of price increases, negatively impacted margins by another 160 basis points, predominantly driven by an increased impact from tariffs.

We're implementing additional price increases and product cost reductions to help mitigate the impact of tariffs on a full-year basis. Lastly, residual inefficiencies from the business optimization go-live accounted for the remaining 140 basis points of the decline in margins, which was in line with our expectations and principally related to elevated contract labor that was expensed in the quarter. Turning to the balance sheet. Inventories totaled $612 million at the end of the first quarter, up from $545 million a year ago and $502 million at the end of fiscal 2019.

The seasonal increase is in line with what we had expected, and we remain on track to reduce inventories to approximately $400 million by the end of the fiscal year. In fact, we plan to drive inventory reductions with each sequential quarter through the end of fiscal 2020. Net debt at the end of the first fiscal quarter was $517 million, compared with $373 million last year. At the end of the quarter, we had $371 million drawn on our new revolving credit facility, which represents approximately 78% 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. The new facility contains a springing fixed charge covenant calculated quarterly based on the trailing four quarters. We must be in compliance with the covenant if there is less than 12.5% or $50 million of unused capacity on the facility. Based on the first-quarter covenant calculation, we are in compliance, if it were to spring during the second quarter, which enables us to access the entire borrowing base.

Before I turn the call over to Todd for his closing remarks, let me comment briefly on the outlook for the remainder of fiscal 2020. We are maintaining our previously issued guidance for the year, which contemplates a 5.5% midpoint increase in sales and substantial improvement in profitability compared to fiscal 2019. The first-quarter performance gives us added confidence that we will achieve our full-year outlook. We continue to project 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.

Pertaining to the second quarter, we expect engine sales will be up to 20% lower than sales from the second quarter of last year because of the timing of shipments. First, in the second quarter of fiscal 2019, our OEM channel partners in the U.S. accelerated the timing of their orders to facilitate the historic brand transitions. This year, we expect the timing of engine shipments to return to a period that is closer to the lawn and garden season.

Second, we believe channel inventory remains elevated in Europe, as Todd mentioned earlier. As a result, we expect OEM customers there to build later than usual this year. In addition, we intend to produce approximately 250,000 or 15% fewer engines in the second quarter as part of our plan to reduce inventory. This temporary reduction in production will negatively impact engine margins in the quarter through lower absorption of factory costs.

Also, during the second quarter, we expect to incur approximately $5 million in incremental costs to remediate residual inefficiencies from last year's implementation of the business optimization program. This is an amount similar to what we communicated at the outset of the year. Lastly, despite achieving lower ESG&A expenses in the first quarter, we expect full-year ESG&A expenses to increase by approximately 5% to 6%, primarily related to higher compensation costs, which implies higher ESG&A costs in the second quarter. With these factors combined, we expect second-quarter consolidated adjusted operating margins to be up to 300 basis points below those of last year's second quarter.

Now let me turn the call back over to Todd for some closing remarks.

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

Thanks, Mark. Results for the first quarter of fiscal 2020 support our confidence and our strategy and road map for value creation, as well as our ability to address and alleviate the temporary inefficiencies in our business. Now in the seasonally adjusted -- seasonally slower period and with fewer market dislocations, we are driving improvements to increase operational efficiency and deliver higher returns on invested capital. In addition to our focus on operation -- on efficiency improvements and strengthening the balance sheet, we continue to pursue avenues of profitable growth and diversification in commercial areas of our business.

Our Vanguard commercial engines are foundational to this strategy. Over the past four years, we have doubled our share of powering the North America commercial turf market. Designed from the ground up, our Vanguard Engines incorporate innovations that deliver a better user experience and lower total cost of ownership. This superior performance is supporting further growth in powering turf and lawn care, as well as extending our reach into powering other commercial applications in shore and construction.

Later this year, we'll be starting production on two new models of our horizontal shaft Vanguard Engines. This expansion further extends the range of global applications served and better positions us to capture more share of the $1 billion global shore and construction engine market. We are also encouraged with the growing interest in our Vanguard commercial lithium-ion battery package system. Numerous OEMs have requested sample battery packs to date.

Since its introduction earlier this year, we now have our first commercial application with Argo XTV using the Vanguard battery pack on their new autonomous vehicle. This award-winning application uses our five KW battery pack, which has the safety and reliability companies are seeking backed our -- by our expertise in optimizing the application of power. In commercial turf products, our new forefront suspension system is being met with good initial success. Incorporated in our new high-end Ferris ISX 2200 and ISX 3300 zero-turn mowers, the forefront suspension system gives operators the ability to mow faster and smoother with greater control.

Finally, let me finish with a brief comment on our generator business, on which we've recently received several inquiries from investors. We participate in the market in two ways with standby and portable generators. Standby currently comprises less than 5% of our consolidated annual sales and has experienced healthy growth over the past few years. Like other suppliers in the industry, we are seeing a significant pickup in interest in standby, in part related to the power outages in California.

We recognize the same opportunities and are directing more resources into standby, both in California and nationally through a solid sales, marketing and engineering team. We have a strong line of highly competitive solutions that are powered by our innovative and proven Vanguard commercial engines and incorporate a range of features to deliver a superior user experience, primarily to residential customers. Historically, California has not been a large market for standby. Market penetration is currently very low, but we believe it will increase as homeowners are impacted by extended power outages.

Supporting this opportunity, we are seeing strong interest from the installation channel, and we have the manufacturing capacity to fulfill a material increase in shipments. Overall, we are optimistic about long-term growth for our standby business from its current relatively small base. For portable generators, we are a major player nationally, serving the market through all relevant channels. Currently, there is an industrywide shortage of emergency generators that are certified for use in California, which has unique emissions requirements.

We are now working on waivers to get EPA certified or 49-state product into California to meet the near-term demand. At this time, it is difficult to quantify the potential upside impact that portable generators will have on our sales, but we will remain actively engaged and stand ready to help homeowners impacted by the outages. As we progress through fiscal 2020, we are squarely focused on priorities to enhance profitability, strengthen the balance sheet and position the company for more sustained profitable growth. We are confident that our strategy is sound and the investments we have made and will continue to make in our operations and infrastructure are leading to attractive risk-adjusted returns.

We are making progress toward returning to operational excellence. Our products are winning in the marketplace backed by user-driven innovation and a deep knowledge of power application expertise that our customers value highly. That concludes our prepared comments. Thanks for listening.

We'll now open it up for questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Timothy Wojs.

Timothy Wojs -- Analyst

Hey, guys. Good morning.

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

Good morning.

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Good morning. How are you?

Timothy Wojs -- Analyst

Good, good. Thanks. I had a few questions, maybe just on the engines business. I just wanted to kind of understand your comment, Todd, just to make sure I got it right.

So on retail inventory, are you saying that it's down relative to normal because Sears which is a higher-than-normal inventory taker is kind of out of the market. So I guess, if you kind of took Sears out of both sides of the equation, how are some of the other players in terms of retail inventory?

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

So let me just be clear on the first part of the comment, so -- your question. So yes, Sears would normally be carrying inventory higher, much higher inventories than they would currently have if you go back over normal seasons in the past. So that's changed. And we don't anticipate that Sears will be increasing inventory really anytime soon.

So ultimately, what we expect, Tim, is that we will have more velocity going in season. And I'll get to the other retailers here in a second. But if you think about the other retailers, we don't anticipate they're going to carry the same low -- they're not going to increase their inventory levels to carry what Sears would have carried. They'll -- we'll just simply get in season.

And as they increase their sales, wherever the Sears buyer goes, then we're going to see more velocity within the season of replenishment. So where are our other inventories? We believe that inventories at some of the other retailers, one in particular is a bit -- is elevated, and I think they're working to take some of that inventory down. The others, I would say, they're probably much more normal. So if you were to exclude Sears, overall, I would tell you, they are a bit elevated with the remaining that are in the market.

Timothy Wojs -- Analyst

OK. OK, that's helpful. And then, I guess, in terms of just kind of the OE kind of production schedules, do you feel like just kind of the expectations around Q2 kind of fully encompass? It sounds like some of the OEMs are kind of taking down production to kind of adjust their inventories as well?

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

Well, they -- I think they are. I mean, we're seeing some softness, which is why we've contemplated it in the comments that we've made in that we do expect it to be down. And again, I would also -- just to reiterate, I would expect that there's more velocity going on in season, which means I think they will then try to produce more in season, which then takes our fiscal Q3 and Q4, really puts much more of a focus on that, especially Q4 as the replenishment goes on during -- generally during that period. So as we've thought about it, and we've -- our current forecast does contemplate OEMs taking down some of their production.

If they take it down further, obviously, that's a risk to our second quarter, but we are in sync with current plans that they have.

Timothy Wojs -- Analyst

OK. OK, gotcha. That's helpful. And then, I guess, when you think about just kind of the portable impact in California.

Let's say, you do get -- let's say, they do kind of give you a waiver or give the industry a waiver to pull in noncarb compliant portables, how would you kind of frame that opportunity internally? And then just, what kind of supply chain things do you need to do to kind of prep yourself for that type of opportunity?

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

Yes. So Tim, here, we're working through that right now with the retailers. And this is so different than even a hurricane that it's hard to tell you -- it's hard to predict in terms of the amount of sales. Having said that, our whole goal is to make sure that we can get product where it needs to be when it needs to be there.

And so just to give you a sense, all of the California compliant, the carb compliant, units sold through now very quickly, as you would expect. And so as we work through this waiver process with carb, we do -- there is inventory out in the market or in our inventory that are storm-related type product. Because if you think about the hurricanes and everything else, I mean, Dorian wasn't a big event. Yet, there's inventory that is out in the field because there's a lot of shipments that were made.

So the retailers would have a choice of taking some of that inventory and moving it out to California. And at the same time, we have inventory in our warehouses where we can ultimately ship that would be 49-state compliant and that would now, under the waiver, allow us to ship in. So we're working -- I mean, this is pretty fluid. I think the waiver, as of this morning, I think California posted on their website yesterday the procedure for the waiver.

And so we expect it to go through. We're currently working through what it means. But we are literally hours into now executing on that. And so it's just -- it's really -- it's virtually impossible to try to predict what it means.

Notwithstanding that, I would tell you that we do have generators that can be sold into that market now, we think, as soon as we get -- go through the waiver process. And -- so we do have product that can help those people out there because it's a tough situation out in California right now.

Timothy Wojs -- Analyst

Yeah. Yeah. OK. OK, that's helpful.

And then just on the positive free cash flow expectations in fiscal 2020. Any kind of help you can give us and just kind of what the range of possibilities would be or at least your expectations are for free cash flow in 2020?

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Yeah. At the outset of the year, we said modestly favorable free cash flow. And so we stick to that, like we mentioned in the remarks, the first-quarter results have us feeling more optimistic about that than we were at the beginning of the year, just given the good results. So we continue to be in that range of the modest positive free cash flow with our expectations still around $55 million of capital spending.

So just a little bit north of that, Tim.

Timothy Wojs -- Analyst

OK. OK. I'll hop back in. Thanks, guys.

Operator

[Operator instructions] The next question comes from the line of Joe Mondillo.

Joe Mondillo -- Analyst

Hi, guys. Good morning.

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

Good morning, Joe.

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Good morning, Joe.

Joe Mondillo -- Analyst

Just wanted to follow up on the whole Sears effects and sort of your comments just now on the last question -- line of questioning. What kind of a season, in terms of the lawn and garden, do you need to see maybe, as you say, more of a velocity in season? Is it just sort of a normalized season and as a result you would anticipate a pickup in season? Or do you need an improved better-than-average or at least compared to the last couple of years type of a season?

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

No, Joe, let me kind of be really clear on my comment. I mean, what I'm talking about is relative to history, where you would generally see Sears take inventory early and then sell that through, along with every other retailer that participates in the category, what I'm talking about is now Sears really -- when you look at some of the industry stats, it still shows Sears had some market share last year, but we know that they aren't reordering. And so that demand is going to go elsewhere. We don't expect the retailers to ramp up their inventories preseason, we expect that as the season goes along, whatever the season is, if it's a good season, bad season or whatever, we expect, though, as the season goes along, there will be sales.

And so that the retailers will make replenishment decisions during the season, which will be more significant than they would have been historically. That's what I've alluded to with Sears.

Joe Mondillo -- Analyst

OK. OK. A couple of questions on the products side of the business. The losses there were a little higher than I was anticipating.

So number one, in terms of the inefficiencies related to the business op, could you give us a little more color of what's going on there? And you -- are these inefficiencies going to continue into the second quarter?

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Yeah, it's pretty in line with what we thought where we said there would be some residual inefficiencies in the first half of the year. And so that's what we're seeing. And really, a part of it is some investments we're making in order to right the ship. And that was -- caught a portion of the impact.

And then the other portion was we incurred some costs late in fiscal 2019 that were capitalized to the balance sheet that then came through in fiscal-year '20 in the first quarter, like we anticipated. So that's where I'd say overall for the company, but predominantly in the products segment, we had about $4 million of the investment and inefficiency flow through. And we projected then the -- which is about $1 million better than we thought. And then the second quarter, we're projecting another $5 million before.

That would position us to go into the back half of the year to drive a lot of the profitability improvement. Because if you look back to last year, the efficiency challenges really surfaced more in the peak production and shipping months, more toward the back half of the year. So you're not going to see quite as much pop in improvement in the early part of the year, but it's rather the activities that we're doing to position us well to get that benefit as we go into the back half, and that's where we're trending nicely.

Joe Mondillo -- Analyst

And what exactly are those investments related to?

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Yeah, in some place, it's contractors and some consulting help to round out some loose edges. In other places, it is contract resources, where we've not been able to get in the full level of help, and that comes at a little bit of an incremental cost. Those are a couple of the bigger items I'd articulate.

Joe Mondillo -- Analyst

OK. And then regarding the tariffs, I was a little surprised to hear that these -- that there's still some headwinds related to tariffs. When do you anticipate price cost related to tariffs to sort of normalize?

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Yeah. I think as we look to go into the rest of the year, we should see a lot more balance there with pricing largely in place. We often do a lot of pricing activities that begin in the start of the second quarter. And so you got that side.

And then we have some very good leads on product cost reductions and sourcing reductions that we're working on as well to implement to help mitigate the impact. But it's helpful to remember that even though it seems like a long time ago, it was just back in September of a year ago that List -- the $200 billion List 3 came into effect at 10%, and that has increased to 25% in June of 2019 and that particular category impacts portable generators pretty hard. So that also explains, Joe, why just the cost side is different year over year.

Joe Mondillo -- Analyst

OK. And then you just commented on the product cost reductions, again, like you mentioned in your prepared remarks, I wanted to understand that a little more. Could you provide some color on sort of what that means and what you're doing?

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Yeah. It's really some of the typical things we do regarding taking cost out relative to materials, labor, and then very much from the material part looking at the sourcing benefit as well and looking at all of our supply chain and reducing the purchase price relative to the inputs that, in many cases, do come from overseas. And so there's opportunity there that we're going after. And then also the cost to bring the product to here as well from a freight and logistics standpoint, which, with elevated costs relative to historic levels and the improvements you can negotiate there, drop to the bottom line very nicely.

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

Yeah. And Joe, I'd add that some of our -- the product that specifically comes from China, we've gone back to those suppliers, and there's ways of working with them to get cost reductions, not the least of which is currency. So as currency fluctuates, and we are able to go back and make sure that we're getting whatever the currency benefit would be along the way. So it's really working on a lot of different things, as Mark pointed out, but a lot of the focus is on some of the contract stuff that's made over in China, so that we can recover from -- through cost reductions and then the residual pricing.

Joe Mondillo -- Analyst

OK. And then I know it's probably early, but I was wondering if you have any sort of an early view, anecdotally or whatever, if you have an early view on engine placement? And then I was wondering regarding that, if you've begun to see any sort of share gains related to some of your China competition?

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

I would tell you, Joe, that we're working through the -- we're working through placement. We didn't make any comments here, which means it's going as we would expect it to go, but it's not done. And any share gains from China, I would tell you that we're not going to comment on where we shook out placement wise share gains or -- until we get to January.

Joe Mondillo -- Analyst

OK. All right. I have a couple more questions, but I'll hop back in queue at this point. Thanks.

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

Hey, Joe? Joe?

Joe Mondillo -- Analyst

Yes. Yes.

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

Keep going.

Joe Mondillo -- Analyst

Oh, OK. So in terms of the overall business optimization, taking out the small engine consolidation because that was sort of an add-on that you've recently started, where are we in terms of getting things in place. It seems like we're pretty much toward the end, but could you just clarify that?

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Yeah, you're exactly right. We are, from a standpoint of now, we're a year and a quarter beyond the ERP go-live and implementation. So we're done there and making some process improvements and the like, as you always do with those things afterwards. Some of those relate to the efficiency investments we're making through the first half of the year.

Related to the Vanguard onshoring, in the quarter, as Todd mentioned, our joint venture stopped its production in Japan. So now all the production is here in the U.S. We added more workforce and did well on our production plan. And in the last quarter, we've also made more of the first-time builds on certain of the engine series as well.

So that one, I would say, is getting very close to that 90% mark with just a little bit more to go in the upcoming quarter before that starts to hit a lot of the first timers being behind you. And then related to our Ferris plant move, which was the third component, we've executed all the planned actions. And really, what I would tell you is left is the process improvements and the hiring that Todd commented on earlier, where we added substantial headcount in the first quarter, but still below our goal. And so we're working very diligently to get the workforce finalize there, so that we can then eliminate the contract labor to the extent planned.

And that's -- and then a couple more process improvements that you'd typically have as you move around production. So you're right. And similar to that, Joe, the costs related to the program, we also estimate are coming to an end where they're very modest in the quarter, and we expect them to be modest through the remainder of the year, less than $5 million total. So happy with that winding down and then able to devote lots of good attention to the small engine plant consolidation.

Joe Mondillo -- Analyst

OK. And then, so to follow-up on that, I'm just curious of what you think in terms of the $35 million to $40 million of savings? How much we have that we have not seen yet? How much more savings going forward do you anticipate from this?

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Well, last year, we commented that we are somewhere around that $5 million, and we're expecting to earn another $5 million in fiscal-year '20. So that leaves some nice runway ahead in the ensuing years with our full goal to hit the $35 million to $40 million by 2022.

Joe Mondillo -- Analyst

OK. So I mean, can you quantify at all how much that we have not yet sort of benefited from or realized?

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Well, we've realized a little over $5 million now. And so that leaves the $30 million to $40 million remaining, of which we'd expect another incremental $5 million this year just because of the pacing of implementation. And then I'd say the remainder would be somewhat ratable over the following years.

Joe Mondillo -- Analyst

OK. OK, I understand. And then I wanted to understand sort of the time line of the small engine consolidation, when should that be completed?

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Well, really, the focus for this year is to shift assembly of the engines really toward the middle part of the year to have that complete. And then once we get toward the end of the year outside of the peak season, we will make some of the heavier moves, if you will, related to some of the heavier equipment that's more, call it, mission-critical to the business that we want to do in the downtime just from an extra safety perspective. So over the course of next summer, we would make those moves related to some of our equipment and then get that up and running in the Missouri plant in the first quarter of 2021. And then -- first fiscal quarter of 2021.

And then from there, it's really just cleaning out the Kentucky plant and getting that ready to fully shutter.

Joe Mondillo -- Analyst

OK, great. And then two more questions. In terms of the opportunity that you've tried to go after or have been attempting to go after in terms of commercial industrial engines. I know there's some decent opportunity that you've talked about, I'm wondering sort of how that business -- that part of the engine business has been progressing?

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

Yes. It's going well, Joe. And for the quarter, Mark, I think we're up what 10% again. So we're seeing double-digit growth continuing in that part of the business.

A little more color, I mean, we had the industry association show about two weeks ago, the OPI GIE Expo. And what was interesting to me going through the show is just to see how many more Vanguard engines are on equipment than it would have been three or four years ago. And a lot of it -- a lot of times in commercial, it's a matter of making sure your engine is qualified on the piece of equipment to make sure that the application is -- performs really well, which, again, that's what we do extremely well, is power application. And you can really see it come through then as you walk the show and see more and more Vanguard throughout.

And so we're really pleased with the way it's been -- with the way that that's been progressing, which is why the onshoring of the Vanguard engines are so important. And at the same time, it's really important now, and I mentioned in the prepared comments, the two new models of horizontal shaft single cylinder that are coming out. We're seeing very nice progress on that. And so the work we've put in over the last several years on preparing ground up applications of new engines, preparing for the moves and everything else, we're really starting to see that now come to fruition.

We think that there's a really solid runway as we move forward.

Joe Mondillo -- Analyst

OK. And then I missed -- I know you mentioned it, but I missed the numbers in terms of residential and commercial growth for the quarter?

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Yeah, in commercial, all in was about 2%, with the significant growth in Vanguard Engines and commercial turf, with job site sales being down year over year.

Joe Mondillo -- Analyst

OK. And you stated that you anticipate job site to improve in the next -- in this current quarter? Is that correct? And if so, what gives you confidence that that will happen given the sort of slower industrial sector?

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

Yes. We anticipate that job site will recover. And we talked about certain product categories. It's interesting, Joe, because there's some parts of job site that we're seeing more weakness than others.

So we did have some timing issues at the end of the quarter, where we ultimately thought we're going to get the shipment out, the customer pushed it out a little bit. And so we think that that's part of the reason we think it's going to recover. And then also, we just got a number of new products that are coming out with new customers, and although the -- some of the rental channel specifically is cutting back, we think that there's some opportunities for us with some of the new things we have coming out to ultimately do a little bit better than the market. And so that's what gives us the confidence that we think it's going to come back as we work our way through the remainder of the year.

Joe Mondillo -- Analyst

OK. And then last question for me. The D&A was quite a bit higher than I was estimating. Is that related to the Ferris plant? Or what drove that? And what are you anticipating for the year in terms of D&A?

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Yes. The majority of that really relates to the small engine plant project, where the noncash charges will include beginning to writedown the facility and property costs to get it down to the realizable sale value, which is the way that works over the remainder that we intend to use the facility. So that's the biggest thing and that we would generally approximate somewhere around $65 million or so in depreciation and amortization for the full-year basis.

Joe Mondillo -- Analyst

For this full year or just the annualized quarterly rate going forward?

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

That's for the full fiscal year without the charges related to the closure of the plant.

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

Yeah, Joe, $65 million would be more normalized for the year.

Joe Mondillo -- Analyst

OK. Perfect. All right. Thanks a lot.

I appreciate you taking my questions.

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

Thanks, Joe.

Operator

And there are no more questions. I'll turn it back over for closing remarks.

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

Thank you for joining today's conference call. Our next quarterly earnings conference call will be in January. Have a great day.

Operator

[Operator signoff]

Duration: 52 minutes

Call participants:

Mark Schwertfeger -- Chief Financial Officer, Senior Vice President

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

Timothy Wojs -- Analyst

Joe Mondillo -- Analyst

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