BRIGGS & STRATTON CORP. $19 (New York symbol BGG; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 50.0 million; Market cap: $950.0 million; Price-to-sales ratio: 0.5; Dividend yield: 2.3%; WSSF Rating: Above Average) gets 60% of its revenue from making lawn-mower engines. (The company is the world’s largest lawn-mower engine maker.) The remaining 40% comes from other home and garden equipment, such as pressure washers and snow blowers.
Because of the weak economy and high unemployment, consumers are spending less on discretionary items, including lawn equipment. As well, major home-improvement retailers are ordering fewer of Briggs’s products. Moreover, 2009 saw fewer hurricanes than previous years. That lowered demand for portable generators.
In its first quarter, which ended September 27, 2009, Briggs’s revenue fell 29.2%, to $324.6 million from $458.2 million a year earlier. Losses ballooned to $8.7 million, or $0.18 a share, from $2 million, or $0.04 a share. The lower sales and a higher income-tax rate were the main reasons behind the higher losses. Briggs typically loses money during its first quarter. That’s because demand for lawn mowers is weak during the fall.
The company is doing a good job of controlling its costs, including closing plants and cutting its workforce. Lower costs put Briggs in a strong position to increase profits as sales rise. The company can also quickly add production if sales suddenly pick up.
Briggs’s balance sheet remains strong: Its $247.2 million of long-term debt is not due until March 2011. It also holds cash of $26.1 million, or $0.52 a share.
The company expects to earn $0.96 a share in fiscal 2009. Based on that estimate, its p/e ratio is a high 19.8. However, the high ratio is justified by the company’s leading share of the small-engine market.
Briggs & Stratton is a buy.
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