A Collection of Current Outdoor Power Equipment (OPE) Industry Related News Articles From OPEESA's (Outdoor Power Equipment and Engine Service Association) Newsletter "OPE-In-The-Know," the Business of OPE.
Tupelo, Miss. (March 2, 2010) – Governor Haley Barbour, officials from MTD and the Lee County Board of Supervisors announced today the expansion of the company’s Tupelo operations into a 525,000-square-foot, county-owned building adjacent to its current facility in the Tupelo-Lee Industrial Park South. The expansion represents a $6.25 million investment by MTD, a lawnmower manufacturing company, and will create 107 new jobs.
“MTD’s decision to expand its Tupelo operations and increase its workforce is great news for north Mississippi,” Governor Barbour said. “I commend company officials for creating more than 100 new jobs in Lee County at a time when job creation is so critical.”
The company’s expansion into the former Eljer Plumbingware Building includes the introduction of a new mower platform and the addition of injection molding capabilities. Operations at the new facility are expected to begin this spring. MTD is continuing operations at its current Tupelo facility, as well.
“This lease of the Eljer facility would not be possible without the great cooperation and timeliness of the Lee County Board of Supervisors,” said Ted Moll, MTD chairman of the board. “This facility will enable MTD to expand operations in Lee County that would previously have not been feasible.”
The Mississippi Development Authority (MDA) worked closely with MTD and local officials to help facilitate the expansion. The agency provided assistance to the county through the Community Development Block Grant Program to help with infrastructure improvements. Assistance from the Appalachian Regional Commission and the county also helped with the company’s expansion.
“I am pleased that MTD is continuing to grow its operations in Lee County,” said MDA Executive Director Gray Swoope. “This expansion further exhibits the company’s commitment to Mississippi and its confidence in the state’s workforce, and we look forward to working with MTD officials in the future to help this global company continue to grow and succeed here in Mississippi.”
“It is always good to see one of our long-standing industries continue to expand in Lee County,” said Darrell Rankin, president of the Lee County Board of Supervisors. “This is truly a testament to our business environment and capable workforce.”
Headquartered in Cleveland, Ohio, MTD was started in 1932 by German immigrants Theo Moll, Emil Jochum, and Erwin Gerhard as Modern Tool and Die Company. The company produced its first lawn mower in 1958 and is now a global manufacturer of outdoor power equipment for the residential and commercial markets.
The MTD family-of-brands includes Cub Cadet, Cub Cadet Commercial, Cub Cadet Yanmar, Troy-Bilt, White Outdoor, Yard-Man, Yard Machines, Bolens, Arnold, GardenWay, MTD Pro and MTD Gold. MTD products can be found in home improvement stores, hardware stores, mass retailers, independent dealers and farm supply stores.
An opinion piece by Will Ashworthwww.stocks.investopedia.com
March 2, 2010 -- In November 2006, private equity firm CCMP Capital purchased Wisconsin-based Generac Power Systems, a manufacturer of standby power generators in both the residential and business markets. CCMP contributed $689 million of its own cash with the rest in debt.
A little over three years later, it's taken Generac public, selling 18.75 million shares at $13 each for net proceeds of $224.1 million. Most of the funds from its IPO will go to reducing its debt. More importantly, the IPO values the entire business at $852.5 million, less than half what CCMP paid in late 2006. Does this make Generac shares a bargain?
Why Pay So Much
Generac's revenues in 2006 were $680 million. CCMP paid almost three times sales for the business. Clearly, this was too much, as Generac was forced to take a $503.2 million goodwill impairment charge and $80.3 million trade name impairment charge in 2008, barely two years after making the acquisition. Assuming there are no additional impairments to follow, you could make the argument the business is worth $1.4 billion. But then why sell shares at a 39% discount?
Too Much Debt Like many private equity deals, CCMP loaded the company with debt, seriously hurting the quality of its balance sheet. Before the acquisition, Generac was virtually debt free and making good money. In fact, the company made 14 consecutive quarterly profitability bonus payouts to its employees leading up to the buyout, and was averaging 20% revenue growth for close to 20 years.
What changed? For starters, the founder, Robert Kern, was no longer involved. Add $1.28 billion in long-term debt and $125.4 million in annual interest expense and you've got a recipe for disaster. In 2006, the company's operating earnings were $169.5 million on $680 million in sales for an operating margin of 24.9%. In the latest nine months ended September 30, 2009, it was 15.9%. Add in the interest expense and there goes the profits.
An Exit Strategy Generac is a dominant North American market share in standby generators. Its competition include Briggs and Stratton, Caterpillar, Cumminsand Honda. These are all big companies and formidable opponents. Fundamentally, there's nothing wrong with Generac's business. Unfortunately, it has a majority owner (CCMP) with an equity position that's upside-down and looking for a way out.
Generac's total indebtedness after the IPO will be approximately $887.1 million, equivalent to its market capitalization, giving it an enterprise value of $1.85 billion. Sadly, there appears to have been few takers at this price, forcing CCMP to take it public in the hopes of quickly selling its 40 million shares above $17 and break even in the process.
The Bottom Line If you bought shares in the Generac IPO, you might be holding them awhile. Robert Kern made a brilliant move selling his business in 2006. The same can't be said for the buyers.
3i, who owned controlling interest in the Italian lawnmower maker, Global Garden Products (GGP), lost control after lenders seized their equity in GGP.
3i invested 260m (181m) of equity when it bought the maker of Mountfield, Stiga, Alpina and Castelgarden brands of lawnmowers, chainsaws and other powered garden tools for 730m in October 2007.
Europe’s largest lawnmower manufacturer said on Monday that it had reached a deal with lenders – including Credit Agricole, Halcyon, Intesa Sanpaolo, Lloyds, Nordea, SEB, BNP Paribas and Royal Bank of Scotland – for them to take it over and wipe out 3i’s stake.
Lenders agreed to nearly halve Global Garden Products’ debt, from 487.7m to 257.1m. Senior lenders wrote off 40 per cent of their debt and second lien debt holders wrote off 43m of claims. Together they will own 85 per cent.
"Market conditions in the quarter were weaker than in the previous year. Retailers were cautious about building up inventories for the coming season. Group sales declined in all product areas, and operating income was negatively affected by lower sales and production volumes. On the positive side, savings from implemented cost-cutting measures were realized according to plan. Operating income for the quarter amounted to SEK -175m (-171), exclusive of restructuring costs. Our consistent efforts over the course of the year to reduce working capital have paid off. Cash flow was very strong both for the quarter and the full year, despite lower income."
oNet sales for the full year amounted to SEK 34,074m (32,342). Adjusted for changes in exchange rates and acquisitions, net sales declined by 8%. Operating income declined to SEK 1,560m (2,361), including restructuring costs of SEK 452m (316). Income for the year was SEK 903m (1,288), or SEK 1.64 (2.81) per share.
oNet sales for the fourth quarter declined by 8% to SEK 4,732m (5,126), or by 6% adjusted for changes in exchange rates and acquisitions.
oOperating income for the fourth quarter declined to SEK -515m (-472), including previously announced restructuring costs of SEK 340m (301). Income was negatively affected by lower sales and production volumes.
oExcluding restructuring costs, operating income for the quarter was SEK -175m (-171).
oProfessional Products reported higher income and margin in the quarter for all product areas, despite lower sales and production.
oOperating cash flow for the fourth quarter rose to SEK 801m (116), and for the full year to SEK 3,737m (2,013).
oThe Board proposes a dividend of SEK 1 (0) for 2009.
NET SALES AND INCOME FOURTH QUARTER
Net sales
Net sales for the fourth quarter of 2009 declined by 8% to SEK 4,732m (5,126).
Adjusted for changes in exchange rates and acquisitions, net sales declined by 6%. Lower sales were reported for both Consumer Products and Professional Products, with the largest decline for Professional Products.
Operating income
Operating income for the quarter amounted to SEK -515 (-472). Operating income includes restructuring costs of SEK 340m (301), of which SEK 164m refers to non-cash items. For details on the restructuring costs, see below.
The decline in operating income was due mainly to lower sales, and lower production volumes in order to reduce inventory, which means lower absorption of fixed costs. Savings from previously implemented cost-cutting measures had a positive effect.
Excluding restructuring costs, operating income amounted to SEK -175m (-171), corresponding to a margin of -3.7% (-3.3).
The decline in operating income refers mainly to Consumer Products outside North America. Professional Products reported higher income in all product areas.
Changes in exchange rates, including both translation and transaction effects net of hedging, had a total positive effect on operating income of SEK 46m (91). Hedging contracts had a negative effect of SEK -61m (33).
Costs for restructuring
As communicated in the report for the third quarter in October 2009, the Group intends to implement a number of structural changes in 2009-2011. The measures are aimed at eliminating overlapping and duplication within production and administration, and involve consolidation of production in Sweden and the US, and of the sales organization in Europe and Asia/Pacific.
The total cost for these measures amounts to SEK 399m, of which SEK 59m was charged against operating income in the third quarter and SEK 340m in the fourth quarter. Approximately SEK 175m of the SEK 399m refers to non-cash items.
Annual savings from the above mentioned activities are expected to amount to approximately SEK 400m, and will be generated gradually from the second half of 2010 with full effect as of the first quarter of 2012.
Capital expenditure related to the restructuring is expected to amount to approximately SEK 400m, of which a new plant in Poland will account for approximately SEK 250m.
Financial net
Net financial items amounted to SEK -33 (-140). Net financial items were positively affected by the SEK 3 billion rights issue earlier in the year and by lower interest rates on borrowings.
The average interest rate on borrowings at the end of the quarter was 3.2% (4.3).
Income after financial items
Income after financial items amounted to SEK -548m (-612) corresponding to a margin of -11.6% (-11.9).
Taxes
Tax was positive in the amount of SEK 96m (194), as a result of the negative income after financial items, previously announced changes in Group structure and utilization of tax-loss carry forwards.
Earnings per share
Income for the period was SEK -452m (-418), corresponding to SEK -0.79 (-0.93) per share after dilution.
NET SALES AND INCOME FULL YEAR 2009
Net sales
Net sales in 2009 increased by 5% to SEK 34,074 (32,342), but declined by 8% after adjustment for changes in exchange rates and acquisitions.
The decline in sales refers mainly to Professional Products. Sales for Consumer Products increased in SEK, but decreased after adjustment for changes in exchange rates and acquisitions
Operating income
Operating income declined by 34% to SEK 1,560m (2,361), corresponding to a margin of 4.6% (7.3). Operating income includes restructuring costs of SEK 452m (316) (See section on Costs for restructuring on previous page). Operating margin was 5.9% (8.3), excluding restructuring costs.
Apart from costs for restructuring, the decline in operating income is due mainly to lower sales and production volumes, as well as a less favorable mix in terms of products and geographical markets. In terms of business areas, the decline refers to Consumer Products outside North America, and to Construction products within Professional Products.
Changes in exchange rates, including both translation and transaction effects and net of hedging contracts, had a total positive effect on operating income of SEK 30m (184). Hedging contracts had an adverse effect of SEK -109m (-89).
Financial net
Net financial items amounted to SEK -466m (-594). The improvement is due mainly to lower interest rates, as well as lower net debt as a result of both the rights issue and the improvement in cash flow during the year.
As of year-end the average interest rate for total borrowings was 3.2% (4.3). During the year, the average fixed interest-term of the loans was extended to 24 months (5) by entering into interest rate swaps.
Income after financial items
Income after financial items declined by 38% to SEK 1,094m (1,767), corresponding to a margin of 3.2% (5.5).
Taxes
Taxes amounted to SEK -191m (-479), corresponding to 17.5% (27.1) of income after financial items. The lower tax rate is an effect of previously announced changes in Group structure, a one-time tax repayment in the amount of approximately SEK 40m in the second quarter, and utilization of tax-loss carry forwards.
Earnings per share
Income for the period declined by 30% to SEK 903m (1,288), which corresponds to SEK 1.64 (2.81) per share after dilution. Earnings per share for 2008 have been adjusted to reflect the rights issue in 2009.
OUTLOOK FOR THE FIRST QUARTER 2010
Inventories in the trade for the coming garden season are estimated to be lower than in the previous year. As a result of the uncertain market conditions, retailers are expected to continue to be cautious about building up inventories.
The Group’s listings with major retailers for the 2010 season are lower in North America, primarily in terms of low-margin products, and slightly improved in Europe in comparison with 2009.
Shipments in the first quarter are expected to be lower than in the first quarter of 2009. A long winter could cause a late start of the season and delay pre-seasonal shipments from the first to the second quarter.
OPERATING CASH FLOW
Operating cash flow for the fourth quarter increased to SEK 801m (116), mainly as a result of lower trade receivables and lower pre-seasonal inventory build-up.
Operating cash flow for the full year increased to SEK 3,737m (2,013). Cash flow from operations, excluding changes in operating assets and liabilities, was largely unchanged, as the decline in income was almost entirely offset by lower taxes paid.
Cash flow from operating assets and liabilities showed a strong increase, mainly as a result of measures implemented to reduce inventories and trade receivable.
FINANCIAL POSITION
Group equity as of 31 December 2009, excluding minority interests, rose to SEK 12,082m (8,772), corresponding to SEK 22.0 (19.3) per share. The increase is mainly due to the rights issue, which increased equity by SEK 2,988m net of transaction costs.
As a result of the increase in Group equity and the decline in income for the year, return on equity for the full year fell to 7.5% from 15.8 percent. Return on capital employed decreased to 6.6% (10.7).
Net debt at year-end decreased to SEK 6,349m (13,552). Liquid funds were largely unchanged at SEK 2,745m (2,735), while interest-bearing debt decreased to SEK 9,094m (16,287). The reduction in net debt is mainly a result of the rights issue that was completed in April and the improvement in cash flow during the year.
The main currencies used for debt financing are euro, US dollar and Japanese yen. Net debt in the fourth quarter increased by SEK 200m compared with the same quarter in 2008 due to a slightly weaker Swedish krona. In comparison with 31 December 2008, the Swedish krona has strengthened resulting in a decrease of net debt of SEK 660m.
The net debt/equity ratio improved to 0.52 (1.54) and the equity/assets ratio to 40.1% (25.7). The improvement in both ratios resulted mainly from the rights issue and a reduction of working capital.
Husqvarna finances its operations on the basis of shareholders’ equity, cash flow and various types of loans. On 31 December 2009, long-term loans amounted to SEK 7,631m and short-term loans to SEK 661m. Long-term loans consist of SEK 1,617m in medium-term notes as well as bank loans of SEK 5,942m. In 2010, medium-term notes totaling SEK 450m will mature.
The bank loans mature in 2011 and onward. In addition to the above funding, Husqvarna has revolving credit facilities totaling SEK 10,000m, all of which is unutilized. The major parts of these facilities mature in 2013.
PERFORMANCE BY BUSINESS AREA
Consumer Products
Fourth quarter
Sales for Consumer Product declined from the previous year. Retailers were cautious about building up inventories ahead of the coming season, in both Europe and North America. The Group’s production in the quarter was lower than in 2008, which resulted in lower absorption of costs.
Sales for the North American operation were unchanged in local currencies. Sales of wheeled products showed an upturn, mainly as a result of increased market shares. Sales of chainsaws and other handheld products declined in comparison with 2008 when demand was positively affected by storms.
Sales outside North America showed a decline, referring to both the dealer and mass-market channels in particularly Russia and France.
Both operating income and margin for this business area were lower than in the previous year. The decline refers mainly to the operation outside North America. Income in the quarter was charged with restructuring costs in the amount of SEK 200m (74).
Full-year
Industry shipments for the full year declined considerably in both Europe and North America.
Group sales increased in SEK, but declined after adjustment for changes in exchange rates and acquisitions. Sales in North America rose slightly in local currency. The increase refers mainly to wheeled products such as lawn mowers and garden tractors. Sales of chainsaws and other handheld products declined in comparison with 2008, when demand was positively affected by storms. The Group increased its market share in several product categories, partly as a result of new listings.
Sales outside North America increased slightly in SEK, but declined after adjustment for changes in exchange rates and acquisitions. The decline refers in particular to chainsaws and other handheld products in the dealer channel, and in Russia and Eastern Europe.
Sales of Gardena-branded products rose slightly, resulting mainly from expansion of the product range with new lawnmowers and chainsaws.
Operating income and margin for this business area declined sharply. The decline refers to the operation outside North America, and resulted mainly from a less favorable mix in terms of products and geographical markets, as well as lower volumes. A stronger dollar also had an adverse effect on income for the operation outside North America, as a large portion of products are produced in the US. Income and margin for the North American operation improved.
Professional Products
Fourth quarter
Sales for Professional Products were lower than in the previous year, as a result of weak demand. All product areas reported declines.
Operating income and margin for this business area improved, despite lower sales and production volumes. The improvement was due mainly to savings from implemented cost-cutting measures and positive effects from the weaker Swedish krona. Income in the quarter was charged with restructuring costs in the amount of SEK 140m (226).
Full-year
Sales for Professional Products also declined on a full-year basis. Lower sales were reported for all product areas, with the largest downturn for Construction. Sales for Forestry showed a substantial decline in volume in important markets such as Russia, the US and Eastern Europe.
Operating income for this business area declined considerably, but margin remained at a high level. The decline in income refers mainly to lower sales and production volumes, while savings from implemented cost-cutting measures and the weaker Swedish krona made positive contributions. The largest downturn in income was reported for Construction, as a result of the dramatic drop in demand, and income for this product area was negative. Operating margin for Forestry improved, mainly as a result of rationalization of chainsaw production and a large share of new products.
PARENT COMPANY
Net sales in 2009 for the Parent Company, Husqvarna AB, amounted to SEK 8,694m (10,011), of which SEK 6,553m (7,569) referred to sales to Group Companies and SEK 2,141m (2,442) to external customers. Income after financial items amounted to SEK 2,933m (6,312). Income for the period was SEK 2,698m (6,083).
Investments in tangible and intangible assets during amounted to SEK 290m (596). Cash and cash equivalents amounted to SEK 1,262m (682). Undistributed earnings in the Parent Company at the end of the period amounted to SEK 16,753m (12,042).
NEW ORGANIZATION
A new organization was announced in July 2009 and was fully implemented as of 1 January 2010.
Instead of the previous six product-based business sectors, the new organization comprises five business units - Supply Chain, Products and Marketing, Sales in Europe and Asia/Pacific, Sales in North America and Latin America, and Construction Products.
NEW REPORTING STRUCTURE
Implementation of the new organization also involves a change in the Group’s external financial reporting as of the first quarter of 2010. Instead of the previous business areas Consumer Products and Professional Products, the external reporting will comprise:
Forestry and Garden Products, Europe and Asia/Pacific
Forestry and Garden Products, North America and Latin America
Construction Products
Forestry and Garden Products comprise four product categories – wheeled products, handheld products and watering, as well as accessories and tools. Construction products comprise two product categories: equipment and diamond tools for the construction industry, and diamond tools for the stone industry. Restated financial figures according to the new structure for the years 2007-2009 can be found on page 18 in this report.
CHANGES IN GROUP MANAGEMENT
Thomas Andersson has joined Husqvarna in February 2010 as head of the Supply-chain organization. His most recent position was Senior Vice President and Head of Volvo Powertrain Sweden, AB Volvo’s business unit for development and manufacturing of engines and transmissions.
Boel Sundvall will join Husqvarna as of March 2010 as head of Group staff Communications and Investor Relations. Her most recent position was as a partner at the consultancy firm WG & Partners. She succeeds Åsa Stenqvist, who will retire.
