The Toro Company Reports Record Second Quarter Results

• Company achieves record second quarter sales of $745 million, a 6 percent increase, driven by strong demand for professional segment products
• Quarterly net earnings increase 14 percent to a record $1.51 per share
• The Toro Company to celebrate the significant milestone of 100 years in business on July 10, 2014

 BLOOMINGTON, Minn.-- May 22, 2014-- The Toro Company today reported net earnings of $87.1 million, or $1.51 per share, on a net sales increase of 5.8 percent to $745 million for its fiscal 2014 second quarter ended May 2, 2014. In the comparable fiscal 2013 period, the company delivered net earnings of $78.4 million, or $1.32 per share, on net sales of $704.5 million.

“I’m proud of our team’s execution that delivered record sales and earnings for the quarter despite challenging spring weather conditions for the second straight year,” said Michael J. Hoffman, Toro’s chairman and chief executive officer. “Although retail sales of some residential products were hampered by the late spring, we experienced strong growth in our landscape maintenance business.

Contractors who benefited from the robust snow season last winter invested in more new turf equipment during the quarter, favoring our productivity-enhancing mowers. In addition, shipments of golf equipment and irrigation products increased due to channel demand for our innovative new product offerings, including the recently introduced INFINITY™ sprinklers.”

For the first six months, Toro reported net earnings of $113 million, or $1.95 per share, on a net sales increase of 3.6 percent to $1.191 billion. In the comparable fiscal 2013 period, the company posted net earnings of $109.8 million, or $1.85 per share, on net sales of $1.149 billion. Strong retail demand for snow products and landscape maintenance equipment, as well as contributions from its micro irrigation, construction and rental businesses, helped the company to surpass sales and earnings earned in the comparable fiscal 2013 period, which benefited from the Tier 4 diesel engine transition.

“As we approach our Centennial and look ahead to the end of our Destination 2014 journey, we remain encouraged about both our business and prospects for achieving our goals,” said Hoffman. “Our portfolio of innovative products has us well-positioned to drive retail sales and strengthen our market share.

We will keep a watchful eye on retail demand and field inventories across our businesses and make any necessary adjustments. In addition, we will benefit from increased pre-season snow thrower shipments, primarily in the fourth quarter, that are needed to replenish inventories diminished by strong customer demand last winter.

As we strive to achieve our operating earnings goal, we will continue to pursue productivity improvements to leverage expenses and expand margins. While focused on things within our control, we remain mindful that Mother Nature may not deliver favorable summer growing conditions again this year or economic conditions may change, either of which could create potential challenges for our businesses and customers.”

The company continues to expect revenue growth for fiscal 2014 to be about 5 to 6 percent, and net earnings per share to be about $2.90 to $2.95. For the third quarter, the company expects net earnings per share to be about $0.82.

Segment Results

Professional

Professional segment net sales for the second quarter totaled $528.6 million, up 6.5 percent from the comparable fiscal 2013 period. Sales of landscape maintenance equipment increased on strong retail demand, including for our zero turn radius mowers.

Golf equipment and irrigation product sales were up due to channel optimism and demand for new product offerings, including the INFINITY™ sprinklers and Multi Pro® advanced spraying system. Global micro irrigation sales increased with continued demand for more efficient solutions for agriculture and construction and rental equipment sales grew on channel demand for Toro® branded products.

Slightly offsetting these increases were lower sales of professional products in international markets. For the first six months, professional segment net sales were $824 million, essentially flat with the comparable fiscal 2013 period. Sales benefited from strong retail demand for landscape maintenance equipment and increased demand for micro irrigation, construction and rental products, but were offset by sales in the first quarter of last fiscal year that benefited from the Tier 4 diesel engine transition and were not repeated this year.

Professional segment earnings for the second quarter totaled $122.4 million, up 9 percent from the comparable fiscal 2013 period. For the first six months, professional segment earnings were $169.8 million, down 1.8 percent from the comparable fiscal 2013 period.

Residential

Residential segment net sales for the second quarter totaled $210.4 million, up 4.5 percent from the comparable fiscal 2013 period. Sales increased due to stronger domestic retail demand for our residential zero turn mowing products, as customers continued to transition to this mowing platform.

International demand for walk power mowers, as well as domestic demand for electric blowers and trimmers, also benefited sales for the quarter. Offsetting these increases were lower shipments of domestic walk power mowers and decreased sales in Australia due to unfavorable currency exchange and weather conditions.

For the first six months, residential segment net sales were $357.9 million, up 11 percent from the comparable fiscal 2013 period. Sales for the period increased on strong retail demand for our snow products, primarily in the first quarter, due to significant snowfall across key North American markets, as well as increased channel and retail demand for residential zero turn mowing products and international demand for walk power mowers.

Residential segment earnings for the second quarter totaled $23.8 million, down 3.5 percent from the comparable fiscal 2013 period. For the first six months, residential segment earnings were $42 million, up 13.9 percent from the comparable fiscal 2013 period.

Operating Results

Gross margin for the second quarter was 35.5 percent, a decrease of 30 basis points compared to the same fiscal 2013 period, primarily due to higher commodity costs and unfavorable currency exchange rates, somewhat offset by realized pricing. For the first six months, gross margin was 35.9 percent, a decrease of 50 basis points, primarily due to higher commodity costs, segment mix and unfavorable currency exchange rates, somewhat offset by realized pricing.

Selling, general and administrative (SG&A) expense as a percent of sales for the second quarter was 17.9 percent, a decrease of 120 basis points compared to the same fiscal 2013 period. For the first six months, SG&A expense as a percent of sales was 21.5 percent, a decrease of 60 basis points. For both periods, the decrease primarily was due to lower administrative expense, including health care costs, somewhat offset by higher incentive expense.

Second quarter operating earnings as a percent of sales improved 90 basis points to 17.6 percent compared to the same fiscal 2013 period. For the first six months, operating earnings as a percentage of sales improved 10 basis points to 14.4 percent.

The effective tax rate for the second quarter was 32.6 percent, which is the same as the effective tax rate for the comparable fiscal 2013 period. For the first six months, the effective tax rate increased to 32.7 percent from 31.3 percent in the comparable fiscal 2013 period when the company benefited from the retroactive reinstatement of the Federal Research and Engineering Tax Credit in the first quarter.

Accounts receivable at the end of the second quarter totaled $313.5 million, up 1.9 percent from the same fiscal 2013 period. Net inventories were $302.5 million, down 2.4 percent from the same period last year. Trade payables were $236 million, up 15.8 percent compared to the same fiscal 2013 period, primarily due to recent component and commodity purchases in anticipation of product demand in the second half of our fiscal year.

About The Toro Company

The Toro Company (NYSE: TTC) is a leading worldwide provider of innovative turf, landscape, rental and construction equipment, and irrigation and outdoor lighting solutions. With sales of more than $2 billion in fiscal 2013, Toro’s global presence extends to more than 90 countries through strong relationships built on integrity and trust, constant innovation and a commitment to helping customers enrich the beauty, productivity and sustainability of the land. Since 1914, the company has built a tradition of excellence around a number of strong brands to help customers care for golf courses, sports fields, public green spaces, commercial and residential properties and agricultural fields.

Toro, CPSC, Recalls Timemaster and Turfmaster Lawn Mowers Due to Injury Hazard

December 10, 2013

Consumers should stop using this product unless otherwise instructed. It is illegal to resell or attempt to resell a recalled consumer product.

Recall Summary

Name of product:

TimeMaster and TurfMaster lawn mowers

Hazard:

The mower’s blade can break and injure the user and others nearby

Recall Details

Units

About 34,500 in the United States and 1,600 in Canada

Description

This recall involves 2013 Toro TimeMaster 30” and 2013 Toro TurfMaster 30” lawn mowers with the following model and serial numbers: Model number 20199 with serial numbers ranging from 313000101 to 313020271; model number 20200 with serial numbers ranging from 313000101 to 313007366; and, model number 22200 with serial numbers ranging from 313000101 to 313007146.  The phrases “TimeMaster” or “TurfMaster” and “Toro” are printed on the front of the black and red mower. “Toro” is also printed on the side of the mower. The model and serial numbers are located on a decal affixed to the engine base above the left rear tire.

Incidents/Injuries

Toro has received ten reports of blades breaking. No injuries have been reported.

Remedy

Consumers should immediately stop using the recalled mowers and contact Toro for a free repair.

Sold at

Toro dealers nationwide from November 2012 through October 2013 for between $999 and $1,799. 

Distributor

The Toro Co., of Bloomington, Minn.

Manufactured in

Mexico

For Stens, Move into New Building Pays Off

JASPER, Ind. – September 16 -- It’s only been a few months since Stens moved into its new facility, but the Jasper, Ind.-based company’s top executive said the move is already paying off.

Stens distributes replacement parts for lawn mowers, chain saws, golf carts and other outdoor power equipment.

Because of company growth over the years, employees were spread out among three different buildings, but the move allowed them to come back under the same roof, said Stens President Peter Ariens.

In late June, Stens moved into the former Columbus Container building, a 208,000-square-foot facility that Stens purchased and renovated. On Monday, the company hosted a ribbon-cutting to celebrate the move.

Having everyone working in the same space again has improved employee communication and creativity, Ariens said. Since the move, he said, employees have had more success coming up with new ideas and programs.

“The creative juices just flow so much better and they can bounce things off each other all through the day,” Ariens said.

The new space will also give Stens room for growth, Ariens said.

Stens first announced its plans in December 2011. At that time the company said it planned to hire up to 98 new employees by the end of 2015.

Based on those plans, the Indiana Economic Development Corp. offered Stens up to $750,000 in conditional tax credits, and the city of Jasper offered a 10-year tax abatement.

Ariens said his company is still on track to meet its job-creation goals, and has begun filling some positions.

According to information on the IEDC’s website, as of the end of last year, Stens was about one-third of the way to its goal, having added 37 of the planned 98 jobs.

Local Shops Fear Amazon's Expansion

September 4 -- Amazon's notoriously low prices have always given traditional retailers a run for their money. But as the online behemoth builds new warehouses to cut shipping times, small shops are getting even more nervous.

Amazon already has 40 massive fulfillment centers around the country, helping it provide remarkably speedy delivery. "Prime" subscribers get free shipping with even faster delivery: Two days, guaranteed.

But it's about to get even faster, as Amazon builds another five distribution centers this year. The company won't disclose where, but the warehouses are expected to be near several major cities -- including rumored locations outside of Manhattan.

Joe Perrotto owns Power Equipment Plus, an outdoor equipment retailer with three locations, including one outside of Philadelphia. He already keeps a close eye on what Amazon charges for things like lawn mowers and leaf blowers and tries to price his products accordingly. But faster Amazon delivery will squeeze him further.

"They'll have the convenience and immediacy of retail," said Perrotto. "Ultimately, it's going to erode our profitability as we try to offer a price advantage to counter their convenience advantage."

It's the latest in what some view as Amazon's war on small businesses. First came the rock-bottom prices. Then came the Price Check app, allowing shoppers to scan items and compare in-store prices to those on Amazon -- essentially turning independent shops into a showroom for Amazon.

Amazon didn't comment about its impact on small businesses, but spokeswoman Kelly Cheeseman did say new fulfillment centers have boosted local employment and increased demand at restaurants.

For example, Ziggy's Pizza and Sandwich Shop in Gladeville, Tenn., saw its daily deliveries jump 20% this year after Amazon's warehouse opened in a nearby town.

"It's definitely a positive for the community," said Ziggy's owner Adam Shireman.

Other small business owners welcome Amazon's expansion and hope to ride the wave with it.

Sara Selepouchin Villari produces her own line of handcrafted towels and sells them directly to Amazon, which stores them in nine warehouses across the country. It takes care of the orders, shipping and pays Villari a cut.

The more warehouses Amazon adds, the closer she is to her customers.

"During the holidays, it'll be awesome," she said. "When I have customers asking about expedited shipping, I'll be able to point them to Amazon. I'm going to go home and have dinner with my family."

Villari also owns a boutique in Philadelphia, Girls Can Tell, but she's not worried customers will turn to Amazon. While Amazon threatens stores that sell generic items easily found online, Villari has filled her shop with unique artisan products.

"A good boutique has been curated. You're going to stumble upon gifts you never knew existed," she said.

But benefiting from Amazon's new warehouses isn't an option for Meyer Dagmy, owner of the Mashern Army/Navy supply store in New York City. He tried selling through Amazon, but found it almost impossible to sell his goods at prices that could compete online. In some cases, he'd even lose money on a sale.

Now he just hopes Amazon stays away from his specialty: Military and tactical gear.

"Amazon's got bigger fish to fry than me. But if they get into my niche, they could take me out of business," he said. 

www.money.cnn.com

Sheep Lawn Mowers and Other Go-Getters

OBERLIN, OH – November 2 -- In this verdant lawn-filled college town, most people keep their lawn mowers tuned up by oiling the motor and sharpening the blades. Eddie Miller keeps his in shape with salt licks and shearing scissors.

Mr. Miller, 23, is the founder of Heritage Lawn Mowing, a company that rents out sheep — yes, sheep — as a landscaping aid. For a small fee, Mr. Miller, whose official job title is “shepherd,” brings his ovine squad to the yards of area homeowners, where the sheep spend anywhere from three hours to several days grazing on grass, weeds and dandelions.

The results, he said, are a win-win: the sheep eat free, saving him hundreds of dollars a month in food costs, and his clients get a freshly cut lawn, with none of the carbon emissions of a conventional gas-powered mower. (There are, of course, other emissions, which Mr. Miller said make for “all-natural fertilizer.”)

“They countrify a city,” Mr. Miller said of his four-legged staff. “And they lend a lot of awareness about how people lived in the past.”

As an uncertain economy and a stagnant hiring climate continue to freeze people out of the traditional job market, a number of entrepreneurs like Mr. Miller, many of them in their 20s and 30s, are heading back to the land, starting small agricultural businesses. And in the process, they are discovering that modern homesteading offers more rewarding work, and possibly more security, than entering the white-collar fray.

Mr. Miller, a 2010 graduate of Boston University, started his business last year, when several post-college grant applications fell through and no other job opportunities presented themselves. He moved back home and acquired two Jacob sheep, a small, sturdy breed that dates to biblical times. Recently, he added two more to his flock, which he keeps in a pen in the backyard when not in service.

Customers pay $1 per sheep per day, but Mr. Miller also accepts barter payments, which have so far included karate lessons, jugs of maple syrup and the use of one homeowner’s truck. He has done around 20 homes so far, and has so many requests he can’t keep up with them.

Mr. Miller, who supplements his income by working on a local farm, has resisted raising his prices because he wants his services to be available to all. And while Heritage Lawn Mowing is not yet in the black, he says he has found a better way of life.

“It’s a gateway to that whole rural dream,” he said. “And with the type of recession we’re having, there’s stability in it.”

Other yeoman start-ups are charting a more traditional path to profits.

Carrie Ferrence, 33, and Jacqueline Gjurgevich, 32, were in business school at Bainbridge Graduate Institute in Washington State when they noticed that many local neighborhoods were “food deserts,” without easy access to fresh local produce and other grocery staples.

Their answer was StockBox Grocers, a company that repurposes old shipping containers as small grocery stores. The company won $12,500 in a local business plan competition and raised more than $20,000 online in a Kickstarter campaign to finance its first store, which opened in the Delridge neighborhood of Seattle in September.

“It’s a tough job market, and you have really few instances in your life to do something that you really love,” Ms. Ferrence said. “It’s not that this is the alternative. It’s the new plan A.”

In terms of social cachet, agricultural start-ups are a long way from Silicon Valley. But the phenomenon seems to be gaining steam.

Worldwide Opportunities on Organic Farms, a nonprofit that matches willing farmhands with organic farms seeking temporary help, has become, for the 4-H crowd, what Stanford’s computer science department has been for Silicon Valley. In the last three years, membership in the group’s United States branch has quadrupled, and among a certain set of college-age agriculturalists, the organization has become a verb (as in “Did you WWOOF last summer?”).

The agricultural start-up world has also benefited from the growth of the sustainable business community. There are now business school programs in sustainable entrepreneurship, sustainable start-up conferences and venture capital firms that invest solely in green businesses. Even Nike has gotten into the game, with a new sustainable venture fund that will allow it to “thrive in a sustainable economy, one where people, planet and profit are in balance,” according to the company’s Web site.

OF course, the mainstreaming of farm life has inspired a certain amount of skepticism among those with more agricultural experience.

Jason Stroud, 44, of Red Hook, Brooklyn, has been raising chickens since he was 19. He said he thinks many newcomers to the sustainable agriculture world are making a high-tech mountain out of a Bronze Age molehill.

“It’s simpler than one would think,” he said of modern-day homesteading. “Peasants with zero education were doing this hundreds of years ago.”

After his regular work, restoring high-end antiques, dried up earlier this year, Mr. Stroud began advertising his farm skills to fad-chasing urbanites: for a price, he would build them backyard chicken coops and teach them to care for the birds.

The offer was so well received that Mr. Stroud estimates that nearly half of his income now comes from chicken consulting. He dispenses advice on a Web site called Red Hook Chicken Guy, where he lists the benefits of chicken farming in Brooklyn. (Reason No. 10: “It’s just a cool thing to do.”)

“It’s a good opportunity for kids who have gone to college with degrees in Hungarian literature that they owe $300,000 on,” he said, chuckling.

Mr. Stroud’s wife, Susan Gregory Thomas, 42, began growing food for their family when her freelance writing failed to pay the grocery bills.

The economic downturn, she said, has widened the interest in farming beyond the bio-dilettantes and the merely curious: “It’s not a movement that’s going to go away. This economy has been so devastating to so many people that this idea of doing for one’s self, which is very much an American idea, is taking hold.”

But being an agricultural entrepreneur is not without its risks.

Richard Charles, a Wall Street technology manager, decided to become an urban farmer after he was laid off twice, first by Citigroup, in 2008, and then by Goldman Sachs, in 2009. He and a former colleague from Citigroup, David Lowe, started EcoVeggies, a company that uses aeroponic technology to grow plants without soil. Their plan is to convert abandoned buildings in Newark into high-tech urban farms that will supply produce to local restaurants and schools.

The reward “is the immense satisfaction of starting from a dream and doing something,” said Mr. Charles, 44.

Still, he and Mr. Lowe used personal savings to finance their EgoVeggies project, and so far have failed to turn a profit. Mr. Charles, who has a day job at a renewal energy consulting firm, said he now works harder, and makes less, than he did on Wall Street.

Likewise, Ms. Ferrence of StockBox Grocers said that although she has gotten interest from investors, the first store is still in the red, and the low margins of the grocery business mean it will probably never generate huge profits.

As Mr. Charles put it, “Entrepreneurship is a great idea, but it’s not for everyone.”

Those who can either spare the money and the time or do without both, however, may find that going back to the land offers an appealing challenge.

On a recent afternoon, Mr. Miller took his flock of sheep to the home of a new client, where he tied them to two stakes in the backyard and watched as they began to eat.

Jacob sheep, he said, go first for broad-leaf plants, then for dandelions and clovers, and then for grass. They generally avoid flowers and other decorative growth, he added, and seem drawn to intruders like buckthorn plants.

“They have a built-in weed whacker,” he said, stroking the fleece of a sheep that goes by the name of Princess.

Mr. Miller has had his setbacks. He lost one lamb to bloating earlier this year, another to parasites and a third when he gave an underperforming animal to a friend who wanted a lamb roast (“Layoffs,” he said with a deadpan expression). Then there was the time his sheep escaped from their pen and were found hours later on a nearby street, and he was fined $50 by the police.

And now, with winter coming, snow will probably put a crimp in his profits.

But after seeing the results of his urban farming experiment, he said he wouldn’t have done it any other way.

“Building a new America will require an understanding of farming,” he said. “We have to look to the past to see the future.”

Mr. Miller would like to go to graduate school to study sustainable development, and eventually wants to be the chief executive of an organic farm company. For now, though, he is looking to expand Heritage Lawn Mowing into neighboring towns, and increase the size of his flock so he can take on larger projects.

Highways, he has been thinking, are a good place to start.

“There’s so much grass in the median strips,” he said. “You could feed a lot of sheep with those.”

www.nytimes.com     

Snowstorms Boost 2010 Snowthrower Sales

January 7 -- In the 12 months ending November 2010, 38 million outdoor power equipment units were sold in the U.S., valued at $5.5 billion, according to NPD’s Consumer Tracking Service. Snowthrowers were the top-growing outdoor power equipment category, up 24% in units and 14% in dollars during the 12-month period ending November 2010, compared to the same time the previous year.

The market research firm said the East/South Central region of the U.S. showed four times the sales of snowthrowers compared to the previous 12-month period. The West North Central, South Atlantic, Middle Atlantic, and New England regions all experienced double-digit growth in snowthrower sales.

“Much of the snowfall of the early part of 2010 came unexpectedly, and seemed constant in some places, driving consumers to get that snow blower they had been putting off, particularly the aging boomer population. With storm after storm, there’s only so much shoveling and back pain we can endure,” said Peter Goldman, president of NPD’s home division.

The outdoor power equipment category, as tracked by NPD, includes chain saws, trimmers, mowers (walk-behind and riding), leaf blowers, pressure washers, and snowthrowers.

www.appliancemagazine.com

As Global Economy Shifts, Companies Rethink, Retool

www.online.wsj.com       

WASHINGTON—November 7 -- When leaders of the world's largest economies gather for a summit in Seoul this Thursday, their mantra will be "global rebalancing."

The idea is to change the world economy so that it relies less on American consumers and more on shoppers in China, Germany and other countries with big trade surpluses. The aim is to build a firmer foundation for global growth and avoid financial instability.

But it's far easier for politicians to talk about rebalancing than to achieve it. Over the weekend, Germany's finance minister Wolfgang Schäuble lashed out at the U.S., telling a German publication, "There are many reasons for America's problems—German export surpluses aren't one of them."

While government policies—exchange rates, interest rates, taxes, trade barriers—play a role, rebalancing depends critically on decisions made in corporate boardrooms.

CEOs are scanning the globe constantly, trying to discern whether American consumers are truly becoming thriftier, whether Chinese economic strength is sustainable and whether Europe is destined for slow growth. At the most practical level, rebalancing hinges on their success in selling more goods in lower-consuming nations such as China and Germany.

"They are central to rebalancing," says University of Chicago economist Raghuram Rajan, a leading theorist of rebalancing. "They are the agents carrying it out."

A look at three companies—Briggs and Stratton Corp., a 102-year-old U.S. lawn-mower manufacturer; German luxury car maker BMW AG; and Gap Inc., the iconic U.S. apparel retailer—shows why rebalancing is bound to be slower, more complicated and riskier than finance ministers and their economic advisers suggest.

"How do you convince people to change behavior?" asks Friedrich Eichiner, BMW's chief financial officer. "It's very difficult."

The Group-of-20 nations pledged last fall in Pittsburgh to rebalance growth, but so far there is scant evidence of fundamental change. Rather than shift to domestic consumption, China and Germany are reporting big gains in exports through August, though their trade surpluses are roughly comparable to 2009's recession-year trough. The U.S. trade deficit, meanwhile, is up 40% from last year.

For companies, the global math is daunting. The U.S. consumer is such a large portion of the global economy that freer-spending consumers elsewhere won't easily make up any shortfall. Each percentage-point reduction in the annual savings rate in Germany and China—two countries with particularly big surpluses that have pledged to boost spending—would increase consumer spending by a total of just $42 billion.

By contrast, each percentage-point increase in the U.S. household savings rate reduces spending by $100 billion, estimates McKinsey Global Institute, the think tank of the consultancy. U.S. consumers now save 6% of their after-tax income, compared to just 1% in 2005.

Each of the three companies finds rebalancing tricky, illustrating the scope of the challenge.

For Briggs and Stratton, shifting business to China is hard because the Chinese buy few of the items it makes for Americans. Germany, meanwhile, is a small market for U.S.-style lawn mowers.

For the Gap, expanding in the competitive German market and in the fast-expanding Chinese market simultaneously requires different strategies and relentless trial and error.

For BMW, the challenge is maintaining balance: Its cars are such a hit in China that the German company's executives fear they are vulnerable to government interference or a bursting of a China bubble.

The Limits of Culture

Briggs and Stratton is looking to China, Germany, India and anywhere the grass grows to make up for lost U.S. lawn-mower sales. "It drives me crazy when I see people [overseas] on their hands and knees cutting grass" without power mowers, says the company's chief executive, Todd Teske.

But the company's products are so tightly woven into the fabric of U.S. suburbia—what's more American than mowing the grass on a Saturday afternoon?—that Briggs and Stratton faces steep cultural hurdles to expand abroad. The emerging Chinese middle class live in apartments, not single family homes, so few need lawn mowers. German homeowners have smaller lawns, on average, than Americans, and don't need the powerful gas-driven mowers that are Briggs and Stratton's specialty.

The lesson: It's hard for many companies to quickly shift sales overseas because foreign consumers have very different tastes and needs.

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When the real-estate market burst, so did Briggs and Stratton's U.S. sales. Earnings fell short of consensus estimates in 12 of 14 quarters between March 2005 and June 2008, according to FactSet Research Systems, a market research firm.

Briggs and Stratton has scaled back its hopes for U.S. growth. It figures the market for its lawn mower and other small engines will be just shy of 8 million engines this year compared to estimates of more than 11 million before the recession.

To cope, the company has slashed expenses, cutting its global work force to 7,000 by eliminating 2,500 U.S. jobs since 2005 and shifting output from unionized Wisconsin to southern college towns, where it could hire students as part-time, nonunion workers.

In theory, big growth could come from the lawns of Europe and the developing world, but American-style mowers aren't the rage overseas. While about one fourth of Briggs and Stratton's $2 billion in revenue now come from abroad, those sales have barely budged since 2006.

China does beckon—but not for lawn mowers. Briggs and Stratton has set its sights on the agricultural market, banking on Beijing spending heavily to mechanize farms as part of the next step in China's development. The American company has reworked engines that it produces in its Chonqqing factory, so they could be used in rice harvesters and planters.

Although Briggs and Stratton has a city-based network of dealers in China to sell generators and mowers, it needs a new set of rural distributors. The task is so daunting, Briggs and Stratton is looking for a Chinese partner that knows the rural market and also has an in with the government. Farmers who buy machinery endorsed by the government can receive subsidies of as much as 90% of equipment costs.

"The Chinese market won't move the needle one iota in the next two years," from current sales of less than $75 million, says Mr. Teske. "In three to five years, it could be a big business."

Two Markets, Two Strategies

The Gap tried to expand to Germany once before, but it failed and shut its 10 stores there in 2004. Now it's set to re-enter, only this time via the Internet instead of with bricks-and-mortar stores, hoping to save money.

The lesson: rebalancing is risky and expensive because of entrenched competition in many sectors, so many companies move cautiously.

"Where do we find growth?" says Art Peck, the company's executive vice president. "We need to monetize our brands across economies and geographies." That's because in the U.S. sales have dropped by about 15% since the recession and, Mr. Peck says, American consumers remain "twitchy."

To help compensate, the Gap is embarking on a two-speed overseas strategy. It is going slow in Germany and other European countries, where it is improving its website so European shoppers can order in their own language and pay in their own currency. Relying on technology, the Gap figures, limits its financial risk in a slow-growth, high-competition market.

It makes sense to "gauge consumer interest" before investing more heavily in stores in Europe, where it long has had more than 100 outlets in Britain, France and Ireland, says Mr. Peck, a slim 54-year-old executive vice president, who dresses for work in Gap jeans and sports shirts.

Retailers have a notoriously difficult time succeeding overseas because they must learn to deal with different tastes, regulations and market quirks. They have a special role in global rebalancing, inducing consumers overseas to spend more through special deals and glitzy marketing.

Germany, one of the big hopes for rebalancers, is an especially tough market. Not only is it chock full of established competitors, but German consumers also aren't given to splurges.

In Munich, Uta Juergens, a 43-year-old bookstore employee, and her 20-year-old daughter, Sabrina, stopped to chat outside an HandM department store, one of the Gap's big rivals. Mrs. Juergens doesn't own a credit card. Her daughter has one she limits strictly for Internet purchases.

"When I don't have money, I can't spend it," Sabrina says approvingly. Neither show much interest in the Gap when they hear it will only be available online because they like to try on clothes before buying them, they say.

Wary of expanding more in Germany, the Gap is pushing hard in China, where it is opening four new stores in Shanghai and Beijing starting this week.

The Gap realizes it is facing plenty of competition already in China, including its global rivals HandM and Zara. It hopes to differentiate itself by offering an "Asian fit," with fewer curves, and undercut competitors on price on some items. Many Western retailers simply translate their U.S. or European prices into yuan, or mark them up further, turning jeans and blouses into luxury purchases for consumers who earn far less than their Western counterparts.

But even if the Gap and other retailers are a hit, it is unclear it will make much difference in the idea of turning China into a consumption-led economy.

A study by University of British Columbia economist Keith Head and two others of the impact of four Western retailers in China—Walmart of the U.S., Carrefour of France, Metro of Germany and Tesco of the U.K.—suggests that the stores actually increased Chinese exports. The retailers are such demanding buyers that their Chinese suppliers become more productive and better able to compete internationally.

Too Much of a Good Thing

For BMW, rebalancing is occurring more rapidly than it expected. But the car maker's top executives aren't celebrating: They worry about becoming too dependent on China.

The lesson: Fearing arbitrary government actions, companies are wary of relying too much on China.

Since the beginning of the year, BMW sales in China have nearly doubled to 114,000 vehicles, making it BMW's third-largest market. Meanwhile sales in the two larger markets, U.S. and Germany, have increased just 5% to a total of about 330,000 cars after falling sharply from pre-recession levels. That is precisely the kind of pattern that rebalancers have been hoping for.

China is now BMW's largest market for its largest and most profitable sedans. Bernstein Research estimates that 50% of BMW's operating profits come from China; BMW says that the profit number is a "lower two digit number."

"It's kind of a windfall," says Mr. Eichiner, BMW's 55-year-old CFO, in his Munich office. "But our strategy isn't to rely on that development. If you do, you lose your focus in the U.S. and Europe."

Overall, consumer spending makes up just 40% of China's gross domestic product, compared to 70% in the U.S. and 56% in Germany, and Chinese households save more than 25% of their disposable income.

The country's affluent class, though, spends freely, making luxury-goods makers big winners. Chinese who earn more than $100,000 are four times more likely than Americans with the same income to buy luxury cars, according to Bernstein Research.

Wealthy Chinese also hunt for high-end fashion, bags, shoes, perfume and other department store items. Chinese purchases of those items will grow 30% this year, to about $13 billion, according to the consulting firm Bain and Co., which says China will become the world's third-largest market for luxury goods, behind the U.S. and Japan, in the middle of the decade.

BMW's senior management says 100% growth is unsustainable, but how much should BMW plan on—20%? 30%? If it overestimates, the company fears getting hammered in a bust.

Even more daunting is the political risk of doing business in an autocratic government whose policies can change suddenly. Mr. Eichiner says he is especially concerned Beijing may want to give domestic small-car producers a boost by crippling imports of BMWs and other larger vehicles through fuel-efficiency regulations or taxes.

So, BMW is downshifting. While it makes one big sedan especially for the Chinese market, it isn't ramping up production enough to fill all its Chinese orders. It wants to make sure it has sufficient supply for the U.S. and Germany.

The company is also counting on the U.S. to rebound more quickly than doom-and-gloomers think, making rebalancing less necessary than the leaders gathered in Seoul believe. It is even reconsidering its decision to cancel a new large SUV, which was meant mainly for U.S. buyers.

"I don't think the U.S. savings rate is sustainable at a level of 6% or 7%," says Mr. Eichiner. Once Americans feel confident again, they'll spend, he says. "It's how Americans are coined."