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Briggs & Stratton Slips to Strong Sell

Zacks Equity Research

On Oct 3, Zacks Investment Research downgraded Briggs & Stratton Corporation (BGG) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

On Aug 15, Briggs & Stratton reported fourth-quarter fiscal 2013 (ended Jun 30, 2013) adjusted earnings of 22 cents per share, flat with the prior-year quarter and below the Zacks Consensus Estimate of 19 cents. On an adjusted basis, earnings for full-year 2013 were 93 cents per share, down 19% year over year and below management’s guidance of $1.16–$1.33 a share.

Net sales decreased 4.8% year over year to $477 million in the fourth quarter. The decline was due to a delayed spring in the U.S. and Europe as well as the company’s decision to stop selling lawn and garden products to large mass retailers in the U.S.

Adjusted gross margin contracted 100 basis points (bps) year over year to 17.9%. Equipment OEMs were cautious to reorder and build more inventories as well as reacted to reducing production and Briggs & Stratton was no exception. Though, controlling of inventory had a positive impact on the company, it also had the near-term impact of reducing fixed cost absorption, and thus, lowering gross profit margins for the quarter.

Briggs & Stratton remains committed to its restructuring and cost reduction plans. However, the ongoing global economic uncertainty and adverse weather conditions may affect the company’s performance.

Following the fourth-quarter earnings release, Zacks Consensus Estimates for fiscal 2014 and 2015 for Briggs & Stratton have gone down 5.7% and 9.7%, respectively, to $1.16 per share and $1.40 per share, respectively.

Other Stocks to Consider

Other companies in the industrial products sector with favorable Zacks ranks are Alamo Group, Inc. (ALG), Kubota Corporation (KUBTY) and Lonking Holdings Ltd. (LONKF). While Alamo and Kubota hold a Zacks Rank #1 (Strong Buy), Lonking carries a Zacks Rank #2 (Buy).

Read the Full Research Report on KUBTYRead the Full Research Report on LONKFRead the Full Research Report on ALGRead the Full Research Report on BGGZacks Investment Research