Briggs & Stratton Corp. $29 - New York symbol BGG

BRIGGS & STRATTON CORP. $29 (New York symbol BGG; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 49.4 million; Market cap: $1.4 billion; WSSF Rating: Above average) is the world’s largest maker of engines for lawnmowers. This business accounts for about two-thirds of its sales and profits. The remainder comes from other home and garden products, including pressure washers and snow blowers. Demand for labor-saving devices like these should grow as the population ages. Severe storms like those that hit the Midwest last winter should also spur sales of Briggs’ power generators. In its third fiscal quarter ended March 31, 2007, profits fell 87.1%, to $0.15 a share (total $7.8 million) from $1.16 a share ($60.0 million) a year earlier. However, the latest quarterly earnings included a $0.42 a share writedown. Sales fell 10.4%, to $717.1 million from $800.2 million. Large retailers such as Home Depot have cut pre-orders of generators since they built up their inventories last year. Unusually cold spring weather has also forced retailers to delay orders for seasonal goods like lawnmowers. Due to slowing demand and rising raw material costs, Briggs is shifting more of its production to low-cost countries such as China. It’s also slowing engine production to keep inventories at normal levels, which hurts its overall efficiency. Briggs anticipates further writedowns of between $8 million and $10 million. The weaker earnings have also forced Briggs to suspend stock repurchases. It spent $48.2 million on buybacks in the nine months ended March 31, 2007. However, Briggs generated cash flow of $1.18 a share in the nine-month period, so the $0.88 annual dividend (3.0%yield) seems safe for now. Briggs will probably earn just $1.27 a share in fiscal 2007, and the stock trades at 22.8 times that figure. But profits should improve to $2.27 in 2008, which implies a more reasonable p/e of 12.8. Briggs & Stratton is a buy.