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BGG Trims Product Focus

Zacks Equity Research

Briggs & Stratton Corp. (BGG) has decided to narrow down its product focus at its Auburn, Alabama plant. Instead of producing multiple products, the plant will be producing V-twin (twin cylinder) engines used in riding mowers to meet its soaring demand in the U.S.

The demand for twin-cylinder is on the rise as more and more American homeowners and commercial lawn service companies are showing their preferences for zero-turn riding mowers and premium lawn tractors. Accordingly, the facility at Auburn has increased its production level to match the mounting demand for twin-cylinders.

In addition, the company has been manufacturing new products at its Auburn facility. The products, including Professional Series and Commercial Turf Series engines, meet the demand for both the commercial and prosumer market segments.

The plant uses advanced Lean Six sigma methodology to produce innovative and high quality products. Its stress is also on cost saving initiatives which the company seeks to achieve by partnering with Alabama Power to identify the energy saving opportunities.

The company’s endeavors are aimed at cost reduction and geographic expansion. Earlier, it had decided to shift the production of horizontal shaft engines from the Auburn, Alabama plant to Chongqing, China, or be sourced from third parties in Southeast Asia.

Briggs & Stratton reported fiscal 2012 adjusted earnings of $1.15 per share missing the Zacks Consensus Estimate of $1.24. Total revenues declined 2% year over year to $2 billion, failing to meet company’s expectation of a growth in the range of 2% to 4%.   

Recently, the company hiked its quarterly dividend by 9% to 12 cents, thereby increasing value to the shareholders. The increased dividend will be payable on October 1, 2012, to stockholders of record as of August 20, 2012.

The current drought conditions in North America and soft demand conditions in Europe are expected to hinder the company’s performance moving forward. The soft housing market in the U.S. would add to the woe.

Briggs & Stratton retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.

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