Strategy Change for Briggs and Stratton

May 4 -- Briggs and Stratton Corp.’s decision to trim its white-collar work force, stop placement of lawn and garden products at national mass retailers and shift more work to China stems from a change in direction that began to take root two years ago.

“We decided to change our strategy,” Briggs and Stratton president and chief executive officer Todd Teske said in an interview with The Business Journal.

The shift in direction involves growing the company’s engine business, focusing on higher margin products and geographic expansion, said Teske, who took over as CEO of the Wauwatosa-based maker of small engines and outdoor power equipment in January 2010.

The changes are the result of a determination “that certain portions of our current business will not be strategic for us in the future,” Teske said.

Briggs and Stratton announced late last month that it intends to cut its salaried work force by 10 percent during fiscal 2012 because projections show that the lawn and garden market in the United States and Europe isn’t expected to return to peak levels any time soon. The cut will affect about 210 white-collar employees around the world, including staff at the company’s Wauwatosa headquarters.

The company also announced that it will no longer pursue placement of lawn and garden products at national mass retailers beginning in fiscal 2013. However, the company’s engines segment will continue to support lawn and garden equipment manufacturers who provide products to these retailers.

Teske called the profit levels for the mass retail business “unacceptable,” which led to the decision.

“We’re not positioned well to be profitable in the U.S. national accounts,” Teske said.

The move to exit the mass retail market is expected to free up $40 million to $80 million of working capital.

Instead, Briggs and Stratton will focus on “innovative, higher margin products” that are sold through its network of Simplicity, Snapper and Ferris dealers and regional retailers. However, Briggs and Stratton will continue to sell portable and standby generators and pressure washers through the U.S. mass retail channel.

Although the lawn and garden market in the United States appears to be poised for a recovery, longer-term projections for the country and Europe indicate that it won’t return to the peaks of 2004 and 2005 for the foreseeable future, if ever, Teske said.

Demand for lawn mowers and lawn tractors has been affected by sluggish sales of new and existing homes, brought on by the extended economic downturn, Teske said.

Peak demand for the products occurred at a time of easy access to credit and “free-wheeling” consumer spending, Teske said. The level of demand experienced in 2004 and 2005 turned out to be “unsustainable” for the long term, he said.

“We don’t see the market level going back to that, but over the next several years it will rebuild to normalized levels,” Teske said.

The housing collapse that followed the peak demand period should have been examined more closely for its potential effects on Briggs and Stratton’s business, he added.

“We didn’t fully appreciate it at the time,” Teske said.

Despite the changes, Briggs and Stratton’s products group remains core to Briggs and Stratton since it “captures incremental value” for its engines business, Peter Lisnic, an analyst at Robert W. Baird and Co. Inc., Milwaukee, wrote in a research note.

Other moves being implemented by Briggs and Stratton involve a shifting of production of horizontal shaft engines from its Auburn, Ala., plant to the company’s existing production facility in Chongqing, China. The product also could be sourced from third parties in Southeast Asia.

Briggs and Stratton previously moved smaller horizontal shaft engines to the Chongqing factory in 2007.

“The plant in China gives us a better cost basis,” Teske said.

The company will continue to manufacture portable generators in Auburn through 2012 and is evaluating alternatives with respect to manufacturing, assembling or sourcing cost-effective portable generators beyond this year. The Auburn plant will continue to produce V-twin engines used in riding mowers and other outdoor power applications.

Briggs and Stratton anticipates that about 250 regular employees will be affected by the Alabama facility consolidation.

The latest round of cuts follows Briggs and Stratton’s January announcement that it would close a plant in Tennessee and shift the work to Georgia, eliminating about 690 jobs in the United States. It also plans to close a plant in the Czech Republic, eliminating 77 jobs.

Briggs and Stratton reported that fiscal third-quarter net income including restructuring charges fell 22 percent to $39.9 million, or 80 cents per share, compared with net income of $51.5 million, or $1.02 per share, for the same period last year.

Revenue for the quarter fell slightly to $720.1 million, compared with $720.3 million for the year-ago period.

Excluding restructuring charges, net income was $49.5 million, or 99 cents per diluted share.

The early spring warm weather in many parts of the United States provided an early start to the lawn and garden season domestically, although sales were significantly lower in Europe as consumers are cautiously spending due to concerns about the overall economy, according to the company.

Baird’s Lisnic said demand appears to have improved, with Briggs and Stratton reporting solid retail sales of lawn mowers and the potential for walk-behind and riding mower shipments to increase 6 to 8 percent year-over-year in fiscal 2012, up from prior expectations of low-single-digit growth. Engine re-order rates also improved in April as manufacturers replenish depleted inventory, he noted.

www.bizjournals.com       Rick Rovito