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.
May 13 -- If the grass-cutting season hasn't arrived yet where you are, you can be sure that it'll be there before long. That means shopping for a lawn mower, if you don't already have one, or replacing that workhorse you've been using for the last umpteen years.
People seem to be taking that chore seriously. According to the J.D. Power and Associates 2010 Walk-Behind Lawn Mower Study, a larger proportion of buyers are considering more than one lawn mower brand, compared with 2009.
The study measures customer satisfaction with walk-behind lawn mowers by examining six key factors: durability; ease of use; maintenance; performance; price; and warranty. The study is designed to provide information that helps customers with purchase decisions, as well as to assist lawn mower manufacturers in their efforts to improve customer satisfaction and brand loyalty.
Honda ranks highest in satisfying customers with walk-behind lawn mowers for a second consecutive year, achieving a score of 766 on a 1,000-point scale. Honda performs particularly well in three of six factors: ease of use, durability and performance. John Deere (760) and Toro (742) follow Honda in the ranking.
Robert of Wesley Chapel, FL, bought a Honda, but isn't particularly happy with it."I carried it in for broken throttle -- this was the second time I have had to carry it in for the same problem within eight months of purchase," he tells ConsumerAffairs.com. He says the manager of the store where he bought the mower told him he should have purchased extra warranty coverage. "I told her I didn't think I would need extra coverage on a $693.99 lawnmower -- especially in a eight month span of owning it."
Michael of Audubon, PA, says he thought he was buying a Toro mower, but " you are not buying a Toro just the name. Toro had a great reputation and you get these companies buying just the name and well it is crap. The mower since the first week I got was trouble. The push handle would not lock in place so the handle would be useless and would not allow you to mow. I found out that TORO was made by Murray and Murray was made by MTD. You do not know this when you buy it,they just use the TORO name to sucker people in."
The study also finds that this year, nearly 70 percent of walk-behind lawn mower owners say that they considered more than one brand while shopping, compared with 62 percent in 2009. In addition, since only approximately one-third of lawn mower shoppers selected the brand they wanted to purchase prior to visiting a retailer, there is ample opportunity for lawn mower manufacturers to influence decisions at the point of purchase.
"Most walk-behind lawn mower shoppers go to a retailer without doing much research beforehand and primarily rely on in-store displays to educate themselves about the different brands and models available," said Christina Cooley, senior manager of the real estate and construction industries practice at J.D. Power and Associates. "Without spending much time up front investigating what lawn mower best meets their needs, the shopper is likely to base their decision mainly on price."
J.D. Power and Associates offers the following tips to consumers who are shopping for a walk-behind lawn mower:
1.The lifespan of a lawn mower averages between seven to 10 years, and consumers typically spend approximately $300 on their walk-behind mower, on average. Therefore, it pays to research several brands and models to determine the best lawn mower for your needs before making the investment. Without performing this research, the lawn mower may fall short of your expectations.
2.In conducting your research, seek out the following: manufacturer and retailer websites; recommendations from friends and family; in-store product displays; and retail staff.
3.Visit multiple retailers. Many lawn mower owners choose a store at which to shop first, and then select a lawn mower from the brands that are available there. Going to more than one retailer may present you with more options from which to choose.
In addition, it's a good idea to look at lawn mower ads carefully to make sure the machine you think you're buying is the one you get.
The 2010 Walk-Behind Lawn Mower Study is based on responses from more than 2,900 owners who purchased a new lawn mower within the past 24 months and who have used their lawn mower a minimum of four times.
Lincoln, NE -- May 13 -- Beatrice lawn mower maker Exmark Manufacturing sued Briggs & Stratton Power Products Group and Schiller Grounds Care Inc. Wednesday alleging their mowers infringe on its patents.
The lawsuit filed in U.S. District Court in Omaha sought an injunction against Briggs, a Wisconsin company, and Schiller, a Pennsylvania company, both alleged to be making and selling mowers covered by an Exmark patent.
Exmark's attorney, Jill Robb Ackerman of Omaha, said in the suit that the infringing mowers include those sold under the names: Snapper Pro S200X, Ferris Comfort Control DD, mowers with the Briggs' iCD Cutting Systems, all made by Briggs; and Bob-Cat FastCat Pro and Hydro Walk-Behind, made by Schiller.
Exmark has been damaged by the infringement and will continue to be until it is stopped, she said.
John Wright, a spokesman for Exmark’s parent company, Toro, said the company does not coment on pending litigation. However, he said that the company will “vigorously defend” its intellectual property.
Exmark, which has been in business in Gage County since 1982, manufactures professional turf care equipment including lawn mowers and lawn mower parts. It is a unit of the Toro Co.
May 7 -- A weak economy and a lack of winter storms resulted in a 57% drop in first-quarter profit at Generac Holdings Inc., a generator manufacturer.
But there are encouraging "pockets of demand" for generators at hospitals, wastewater treatment plants, schools and other facilities, Aaron Jagdfeld, chief executive of the Waukesha-based company, said Friday in a conference call with analysts.
"We continue to believe the aging power grid is more susceptible to power outages," he said.
Generac said its quarterly profit fell to $2.47 million from $5.79 million a year ago.
The company has been publicly traded since Feb. 11.
Its recent results were hurt by weak industrial and commercial market conditions and a weaker storm season.
Residential product sales were $84 million, down 5.1% from $88.5 million a year ago.
Industrial and commercial product sales of $38.3 million were down 15% from $45.1 million in the year-ago quarter.
"We continue to be cautious about the economic environment as our end customers closely monitor big ticket capital spending," Jagdfeld said. Sales trends are expected to continue as they have because of weaker storm activity and softness in non-residential construction, he said.
"The first-quarter results were modestly below our expectations, though underlying trends were largely consistent with our expectations," analyst Michael Halloran with Robert W. Baird & Co. said in a note to clients.
"Though we are modestly disappointed in the outlook, we are not surprised that revenue trends were lowered. Further, we are more focused on the long-term growth potential of the company, which remains intact and is promising," Halloran wrote.
There have not been many big storms in recent months to trigger generator sales. But the weather-altering El Niño condition in the Pacific Ocean seems to be easing and could be over by June, government climate experts reported Thursday.
Last month, forecasters Philip J. Klotzbach and William M. Gray of Colorado State University said they foresee above-average storm activity for the Atlantic hurricane season due to a warming of tropical Atlantic "and a more confident view that the current El Niño will weaken."
The government's hurricane forecast for this summer is due out later this month.
If conditions revert to neutral, it could complicate forecasting this summer's hurricanes, since El Niño years tend to have fewer storms than normal in the Atlantic and Gulf of Mexico.
Meanwhile, the U.S. market for standby generators, which are units tied into the electric system of homes or businesses, has barely been tapped, with only about 1% or 2% of homes having standby power units.
This summer, Generac plans to begin selling a standby generator with a suggested retail price of $1,699 - not including installation costs, which could exceed $1,000.
"We are being conservative coming out of the gate," Jagdfeld said, adding that much of the product's initial success will depend on getting good placement in stores.
Consolidated net sales for the third quarter of fiscal 2010 were $695 million, an increase of $21 million or 3% when compared to the same period a year ago.
Third quarter fiscal 2010 net sales for the Engines Segment were $499 million versus $480 million in the third quarter of fiscal 2009, an increase of $19 million or 4%. The increase in net sales was primarily the result of an engine unit shipment increase of 6% from the same period a year ago.
Offsetting the volume improvement were lower average prices in effect for fiscal 2010. Shipments of engines increased in the third quarter for lawn and garden applications due to the shift of OEM production to the last half of the fiscal year from the fiscal second quarter reflecting the desire of the channel participants to control their working capital commitments at the end of the calendar year.
Third quarter fiscal 2010 Power Products Segment net sales were $245 million, a $5 million or 2% decrease from the third quarter of fiscal 2009. The net sales decrease was primarily the result of lower portable generator sales in the quarter, as the current year’s quarter did not have hurricane replenishment shipments that were experienced in last year’s third quarter. The portable generator sales decrease was partially offset by stronger pressure washer volume and a small improvement in shipments of lawn and garden equipment.
Consolidated net sales for the first nine months of fiscal 2010 were $1.41 billion, a decrease of $197 million or 12% when compared to the same period a year ago.
Engines Segment net sales for the first nine months of fiscal 2010 were $984 million, a $95 million or 9% decrease compared to the first nine months of fiscal 2009. Unit volume decreases of 7% through the first nine months of fiscal 2010 were the result of lower engine demand for portable generators, soft engine shipments to European lawn and garden equipment manufacturers and minor market share losses in various engine categories. The majority of the remainder of the net sales decrease was due to lower pricing implemented for fiscal 2010.
Power Products Segment net sales for the first nine months of fiscal 2010 were $566 million, a $132 million or 19% decrease compared to the first nine months of fiscal 2009. Lower portable generator sales for this nine-month period accounted for almost all of the net sales decrease primarily due to the absence of any hurricane activity in fiscal 2010.
GROSS PROFIT MARGIN
The consolidated gross profit margin improved to 20.2% for the third quarter of fiscal 2010 from 16.6% in the same period last year.
Engines Segment gross profit margin increased to 24.6% for the third quarter of fiscal 2010 from 19.7% in the third quarter of fiscal 2009. The improvement was primarily the result of lower manufacturing costs for materials, labor and fixed overhead, offset by the lower selling prices as discussed above.
The Power Products Segment gross profit margin decreased to 6.6% for the third quarter of fiscal 2010 from 6.9% in the third quarter of fiscal 2009. The decrease resulted from lower plant utilization, primarily production of portable generators that decreased over 90% in the current third quarter compared to the same period a year ago
The consolidated gross profit margin for the first nine months of fiscal 2010 improved to 18.7% from 15.7% in the first nine months of fiscal 2009.
The Engines Segment gross profit margin increased to 22.3% for the first nine months of fiscal 2010 from 18.6% in the first nine months of fiscal 2009. The improvement was the result of lower manufacturing costs for materials, labor and fixed overhead, offset by lower sales volume, production volume and pricing.
The Power Products Segment gross profit margin increased to 9.2% for the first nine months of fiscal 2010 from 7.1% in the first nine months of fiscal 2009. The improvement was the result of lower manufacturing costs, primarily related to lower commodity costs and planned cost saving initiatives.
The improvements were offset by lower sales and production volumes primarily related to the significantly lower portable generator shipments and production in fiscal 2010 and startup inefficiencies as a result of moving production to other plants during the quarter.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Engineering, selling, general and administrative expenses were $71.4 million in the third quarter of fiscal 2010, an increase of $3.3 million or 5% from the third quarter of fiscal 2009. Engineering, selling, general and administrative expenses were $192.5 million for the first nine months of fiscal 2010, a decrease of $3.8 million or 2% from the first nine months of fiscal 2009.
The third quarter increase is attributable to increased salaries and fringes, offset by reduced professional services and marketing expenses. The fiscal year to date decrease is attributable to reduced professional services and marketing expenses, offset by increased salaries and fringes.
LITIGATION SETTLEMENT
On February 24, 2010, the Company entered into a Stipulation of Settlement (“Settlement”) that, if given final court approval, will resolve over 65 class-action lawsuits that have been filed against Briggs & Stratton and other engine and lawnmower manufacturers alleging, among other things, misleading power labeling on its lawnmower engines. Other parties to the Settlement are Sears, Roebuck and Co., Sears Holdings Corporation, Kmart Holdings Corporation, Deere & Company, Tecumseh Products Company, The Toro Company, Electrolux Home Products, Inc. and Husqvarna Outdoor Products, Inc. (now known as Husqvarna Consumer Outdoor Products, N.A., Inc.) (collectively with the Company referred to below as the “Settling Defendants”). All other defendants settled all claims separately.
As part of the Settlement, the Company denies any and all liability and seeks resolution to avoid further protracted and expensive litigation. If finally approved, the Settlement resolves all horsepower-labeling claims brought by “all persons or entities in the United States who, beginning January 1, 1994 through the date notice of the Settlement is first given, purchased, for use and not for resale, a lawn mower containing a gas combustible engine up to 30 horsepower provided that either the lawn mower or the engine of the lawn mower was manufactured or sold by a Defendant.”
As part of the Settlement, the Settling Defendants as a group agreed to pay an aggregate amount of $51.0 million. In addition, the Company, along with the other Settling Defendants, agreed to injunctive relief regarding their future horsepower labeling, as well as procedures that will allow purchasers of lawnmower engines to seek a one-year extended warranty free of charge.
On February 26, 2010, Judge Adelman preliminarily approved the Settlement, certified a settlement class, appointed settlement class counsel, and stayed all proceedings against all the Settling Defendants. On March 11, 2010, Judge Adelman entered an order approving a notice plan for the Settlement, and set a final approval hearing for June 22, 2010 to determine the fairness of the Settlement, and whether final judgment should be entered thereon.
As a result of the pending Settlement, the Company recorded a total charge of $30.6 million, or $18.7 million after-tax, in the third quarter of fiscal 2010 representing the total of the Company’s monetary portion of the Settlement and the estimated costs of extending the warranty period for one year. The amount has been included as a Litigation Settlement expense reducing income from operations on the Consolidated Condensed Statements of Income.
INTEREST EXPENSE
Interest expense for the third quarter of fiscal 2010 was $7.3 million compared to $7.7 million in fiscal 2009. Interest expense for the first nine months of fiscal 2010 was $21.0 million compared to $24.3 million in fiscal 2009. These decreases are attributable to lower average borrowings for working capital purposes.
PROVISION FOR INCOME TAXES
The effective tax rate was 27.1% for the third quarter and 22.3% for the first nine months of fiscal 2010 versus 31.4% and 23.4% for the same periods last year, respectively. The variation reflected between years was due to the required recognition of the tax effect of certain events as discrete items in the quarter in which they occurred.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities in the first nine months of fiscal 2010 was $16.5 million, a $41.1 million improvement from the $57.6 million used by operating activities in the first nine months of fiscal 2009. This improvement was primarily attributable to $58.6 million less of working capital requirements between years, offset by lower operating results due to the litigation settlement. The improvement in working capital requirements is primarily the result of increased accounts payable due to the timing and level of vendor payments.
Cash used by investing activities was $24.8 million and $53.2 million in the first nine months of fiscal 2010 and fiscal 2009, respectively. The $28.4 million decrease was primarily the result of the absence of the $24.8 million used for the acquisition of Victa Lawncare Pty. Ltd. in the first nine months of fiscal 2009 and planned reductions to plant and equipment spending.
Cash provided by financing activities was $52.9 million and $97.9 million in the first nine months of fiscal 2010 and fiscal 2009, respectively. This $45.0 million decrease is attributable to decreased net borrowings for working capital purposes, offset by a reduction in dividends paid.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
On July 12, 2007, the Company entered into a $500 million amended and restated multicurrency credit agreement. The Amended Credit Agreement (“Revolver”) provides a revolving credit facility for up to $500 million in revolving loans, including up to $25 million in swing-line loans.
The Revolver has a term of five years and all outstanding borrowings on the Revolver are due and payable on July 12, 2012. As of March 28, 2010, borrowings on the Revolver totaled $139.4 million. This credit facility and the Company’s other indebtedness contain restrictive covenants as described in Note 9 of the Notes to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K. As of the end of the third quarter of fiscal 2010, the Company was in compliance with these covenants.
The Company expects capital expenditures to be approximately $50 to $55 million in fiscal 2010. These anticipated expenditures reflect our plans to continue to reinvest in equipment, new products, and capacity enhancements.
The Company is not required to make any contributions to the qualified pension plan during fiscal 2010, but may be required to make contributions in future years depending upon the actual return on plan assets and the funded status of the plan in future periods.
The Company’s $206.1 million of 8.875% Senior Notes will mature in March 2011. At this time, the Company believes it will be able to replace these borrowings with new financing.
Management believes that available cash, cash generated from operations, existing lines of credit and access to debt markets will be adequate to fund the Company’s capital and liquidity requirements for the foreseeable future.
OFF-BALANCE SHEET ARRANGEMENTS
There have been no material changes since the August 27, 2009, filing of the Company’s Annual Report on Form 10-K.
CONTRACTUAL OBLIGATIONS
There have been no material changes since the August 27, 2009, filing of the Company’s Annual Report on Form 10-K.
CRITICAL ACCOUNTING POLICIES
There have been no material changes in the Company’s critical accounting policies since the August 27, 2009 filing of its Annual Report on Form 10-K. As discussed in our annual report, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.
Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.
The most significant accounting estimates inherent in the preparation of our financial statements include a goodwill assessment, estimates as to the realizability of accounts receivable and inventory assets, as well as estimates used in the determination of liabilities related to customer rebates, pension obligations, postretirement benefits, warranty, product liability, group health insurance, litigation and taxation. Various assumptions and other factors underlie the determination of these significant estimates.
The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and, in some instances, actuarial techniques. The Company continues to evaluate these significant factors as facts and circumstances change.
WASHINGTON, May 5 -- The Auto Alliance, the American Petroleum Institute and the Outdoor Power Equipment Institute urged EPA to delay action on the agency's proposal to allow higher levels of ethanol in gasoline. Higher levels of ethanol have not been proven safe or effective according to industry projections based on preliminary results of testing introduced today at a meeting of the Mid-Level Ethanol Blends Research Coordination Group.
Dave McCurdy, president and CEO of the Alliance of Automobile Manufacturers; Jack Gerard, president and CEO of the American Petroleum Institute; and Kris Kiser, executive vice-president of the Outdoor Power Equipment Institute issued the following statement: "As the EPA proceeds with important decisions about ethanol and biofuel blend rates, it is imperative that those decisions be made with the end user market in mind. These decisions will have real world impacts and we urge the EPA to refrain from setting a premature deadline that ignores reliable, scientific data about the effects of higher ethanol blends on emissions, durability and consumer safety. We remain committed to finding the right market solutions for renewable fuels and look forward to continuing our work with the EPA on this matter."
In addition to government funds, the auto and oil industries have spent more than $6 million over the last two years testing engine performance and durability of higher ethanol fuels, as well as testing storage and dispensing of fuels with 15 percent ethanol (E15). Currently, fuels are allowed by EPA to contain only up to 10 percent ethanol (E10).
Approval of E15 should wait until testing is complete. This testing looks at the potential for vehicle engine and fuel system component damage when operating on this fuel blend. "The impacts of higher ethanol blends will fall on consumers, who will be ill-prepared to determine the right fuel for their car, lawn equipment, boat or motorcycle," said Al Jessel, senior fuels policy advisor for Chevron. "EPA should delay changing the gasoline mix in this country until research into all aspects of vehicle and engine performance is complete."
"Testing for engine and vehicle compatibility and environmental issues is scheduled for completion in 2011," said Coleman Jones, biofuel implementation manager for General Motors. "There's no need for precipitous action when the scientific results are so close at hand."
MADISON, Wis. (May 3, 2010) - With a 100-year legacy of environmental stewardship, Briggs & Stratton Corporation of Milwaukee has prided itself on its community involvement; long-standing commitment to finding smart, eco-friendly business solutions; and aggressive energy saving efforts.
Since 2008, the small engine and outdoor power equipment manufacturer has built on its knowledge and experience to become a leader in energy efficiency and has saved more than 8.5 million kilowatt-hours of electricity and 10,000 therms of natural gas annually - enough energy to power 870 homes for a year. The manufacturer will also benefit from $677,000 in savings on its energy bills each year.
With the help of Focus on Energy, Wisconsin's statewide program for energy efficiency and renewable energy, in partnership with WE Energies, Briggs & Stratton received $538,000 in financial incentives since 2008 to help move energy efficiency projects forward. Some of the projects include:
* Upgrading more than 5,500 light fixtures to high-efficiency models
* Installing over 4,000 occupancy sensors to control the lighting
* Adding variable-speed drives on ventilation fans
* Purchasing ENERGY STAR® food service equipment
* Completing ongoing tune-ups on the compressed-air system
* Sending staff members to advanced energy efficiency courses to find more ways to save
"Saving energy is not only good for the environment, it's good for the bottom line," said Todd Teske, president and CEO of Briggs & Stratton Corporation. "As an organization, we are very committed to the principles of sustainability and this is a great example of that dedication."
Not only have these upgrades saved Briggs & Stratton money, but they have also had positive environmental impact. The annual environmental benefits are equivalent to offsetting 17,000 barrels of oil from being burned - eliminating 14.6 million pounds of carbon dioxide (CO2) from being released into the atmosphere.
And the savings do not stop here. Briggs & Stratton continues to investigate new technologies to find more ways to save energy throughout the business. This year Briggs & Stratton will receive an additional $203,000 from Focus on Energy to install an innovative power regenerating system that will capture some of the lost power generated during engine and generator endurance testing. By recovering this "waste" energy, the project will save/generate more than 1.2 million kilowatt-hours of electricity annually - enough energy to power 128 homes for a year and save more than $104,000 on annual energy costs.
"Briggs & Stratton has made energy efficiency a top priority in its business plan and is going above and beyond to adopt sustainable practices," said Ken Williams, Focus on Energy's business programs director. "I applaud their persistence and dedication to keep energy savings on the forefront and constantly find new solutions."
Focus on Energy can help businesses and residents across the state identify and evaluate energy-saving opportunities, provide specific recommendations, develop energy management plans, arrange technical training opportunities about energy conservation, and offer financial incentives. For more information, call (800) 762-7077 or visit www.focusonenergy.com
Acquisition broadens Toro's offering of compact utility equipment in the rental and landscape markets
BLOOMINGTON, Minn., Apr 30, 2010 -- The Toro Company today announced it has acquired certain assets from USPraxis, Inc., a manufacturer of outdoor power equipment. Through the acquisition, Toro adds a dedicated lineup of stump grinders, wood chippers and log splitters to its product portfolio to strengthen its offering to the rental market.
"Toro has a rich history of offering innovative products for rental and landscape professionals, starting with the introduction of the Toro(R) Dingo(R) compact utility loader in the 1990s and continuing with the launch of our popular TRX walk-behind trenchers and new STX tracked stump grinder," said Rick Rodier, general manager of Toro's Sitework Systems Business.
"USPraxis is an established brand in the rental industry known for innovative, high-quality professional products. The addition of these products allows Toro to continue to broaden and strengthen its compact equipment solutions for the rental and landscape markets."
To complement the acquisition of these product lines, Toro also acquired, and will provide, a tip and blade sharpening service that offers a cost-effective way for rental stores to ensure their equipment is in optimum operating condition.
Moving forward, USPraxis products will be marketed under the Toro brand and sold through Toro's compact utility equipment distribution channel in the United States and international markets.
USPraxis has a solid reputation for its innovative lightweight cutting blades for stump grinding machines and for developing the industry's first walk-behind stump grinder with specialty blades that reduce weight and optimize cutting action.
Net sales for the first quarter declined by 19% to SEK 9,082m (11,152). Adjusted for currency exchange-rate effects, sales declined by 9%. Prices were unchanged. Americas accounted for 7 percentage points of the adjusted decline, Europe & Asia Pacific for 2 percentage points and Construction was flat. Dealer sales increased.
The first quarter predominantly consists of sell-in to the trade for the coming gardening season. The long and cold winter in Husqvarna’s main markets had a negative effect on sales for both garden and construction products. Customers remained cautious regarding build-up of inventory.
Operating income
Operating income for the first quarter decreased by 1% compared to the corresponding quarter 2009 and amounted to SEK 778m (786). Currency had a positive effect of approximately 11% and the net effect from items affecting comparability was negative 2%. Adjusted operating income declined by 10%.
Operating income includes a charge of SEK 50m for settlement of an engine-capacity lawsuit in the US.
The first quarter of 2009 included restructuring charges of SEK 35m related to personnel cut-backs.
The decline in operating income was mainly due to lower sales. Savings from previously implemented cost-reductions had a positive effect and costs for materials were slightly favorable.
Changes in exchange rates, including both translation and transaction effects net of hedging, had a total positive effect on operating income of SEK 100m (90). Hedging contracts had a positive effect of SEK 26m (74).
Operating income and operating margin for Europe & Asia/Pacific and Construction increased, but decreased for Americas.
Financial net
Net financial items amounted to SEK -88m (-196). The improvement is primarily due to lower interest rates and lower net debt. The average interest rate on borrowings at the end of the quarter was 2.9% (3.9).
Income after financial items
Income after financial items increased by 17% to SEK 690m (590) corresponding to a margin of 7.6% (5.3).
Taxes
Taxes amounted to SEK -155m (-126), corresponding to a tax rate of 22% (21) of income after financial items.
Earnings per share
Income for the period increased by 15% to SEK 535m (464), corresponding to SEK 0.92 (0.98) per share after dilution. Due to the rights issue in 2009, the average number of shares has increased compared with Q1 2009.
OUTLOOK FOR THE SECOND QUARTER 2010
Inventories in the trade of the Group’s products at the end of the first quarter were estimated to be slightly lower than a year ago, as result of continued uncertain market conditions as well as a later start to the season due to the late spring.
The sell out in the trade is expected to improve slightly compared to the preceding season, both in Europe and in North America. Despite this, retailers are expected to remain cautious about re-stocking inventories due to the remaining economic uncertainty.
In light of the late start to the season and the expectation of a better sell-out, it is estimated that Husqvarna’s sales in the second quarter will be in line with the second quarter of 2009 despite reduced listings in North America.
OPERATING CASH FLOW
Operating cash flow for the first quarter amounted to SEK -2,433m (714). Cash flow in the first quarter 2009 was positively affected by the sale of trade receivables totaling approximately SEK 2,000m. No trade receivables were sold during the first quarter 2010.
Inventory build-up during the first quarter was higher compared to the first quarter of 2009. Inventory at the end of March 2010 was still well below the level at the end of March 2009. Cash flow from change in trade payables during the quarter was lower due to later ramp up of production compared to the first quarter of 2009.
Due to the seasonality of the Group’s operations, operating cash flow is normally negative in the first quarter.
PERFORMANCE BY BUSINESS AREA
A new organization was implemented as of 1 January 2010. According to IFRS 8 Operating segments, the external reporting should reflect the internal reporting structure and Husqvarna has therefore adapted its external financial reporting.
As of 1 January 2010, external reporting comprises three business areas:
Europe & Asia/Pacific, comprising forestry and garden products sold in Europe, Asia and the Pacific region
Americas, comprising forestry and garden products sold in North America and Latin America
Construction, comprising products for the global construction and stone industries.
Europe & Asia Pacific
Sales for Europe & Asia/Pacific declined 11% compared with the first quarter of 2009. Adjusted for currency exchange rate effects, sales declined 5%. Prices were unchanged. Dealer sales were down less than retail sales in the quarter.
The late spring delayed the start of the season in all major markets, and customers were cautious about building up inventories ahead of the season. Sales in Russia and in Eastern Europe increased compared to the first quarter of 2009 while sales in Western Europe declined.
Operating income and operating margin improved compared with the first quarter of 2009. Operating income for the first quarter of 2009 includes a restructuring charge of SEK 34m. Lower sales had a negative effect on operating income which was compensated by lower selling and administration costs.
Americas
Sales for Americas declined 26% compared to the first quarter of 2009. Adjusted for currency exchange rate effects, sales declined 14%. Prices were unchanged. Dealer sales increased.
Sell-in was weak due to the late spring and retailers remained cautious about building up inventories.
Reduced listings with a major retailer in North America also had a negative effect on sales, especially for low-end lawn mowers.
Operating income for the first quarter of 2010 includes a charge of SEK 50m for settlement of an engine capacity lawsuit. Operating income was negatively affected by lower sales and increased marketing costs in order to grow sales in the dealer channel.
Construction
Sales for Construction declined 8% compared to the first quarter of 2009. Sales were unchanged adjusted for currency exchange rate effects.
The long winter had negative impact on construction activity in several markets, thus reducing demand for construction products. In Europe, sales were slightly higher compared to the first quarter of 2009 and sales to rental companies increased. The North American market remained soft and sales decreased.
Operating income and margin improved, mainly due to a better mix and lower selling and administration costs.
PARENT COMPANY
Net sales in the first quarter 2010 for the Parent Company, Husqvarna AB, amounted to SEK 3,036m (3,039), of which SEK 2,460m (2,482) referred to sales to Group Companies and SEK 576m (557) to external customers. Income after financial items amounted to SEK 766m (-258). The increase in income after financial items is mainly related to changes in market value of net investment hedges of SEK 509m (-417).
These hedges are made in the Parent Company to limit the effects on the Group's consolidated equity resulting from translation differences. In the Group's financial statements these effects are included in Other comprehensive income. Income for the period was SEK 572m (-188).
Investments in tangible and intangible assets amounted to SEK 69m (52). Cash and cash equivalents amounted to SEK 30m (27). Undistributed earnings in the Parent Company at the end of the period amounted to SEK 17,272m (14,411).
RESTRUCTURING
As communicated in October 2009, the Group is implementing a number of structural changes in 2009- 2011. These measures are aimed at eliminating overlapping and increase efficiency within production and administration, and involve consolidation of production in Sweden and the US, and of the sales organization in Europe & Asia/Pacific.
The total cost for these measures amounts to SEK 399m. Approximately SEK 175m of the SEK 399m refers to non-cash items. Annual savings from these activities are expected to amount to approximately SEK 400m, and will be realized gradually from the second half of 2010 with full effect from 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.
In September 2008, an initiative to reduce fixed costs through personnel cut-backs was announced. The total costs for the cut-backs were SEK 369m and the annual savings are SEK 450m as of the third quarter 2009.
No restructuring charges were booked in Q1 2010.
LEGAL MATTERS
Belgian gas explosion judgement
In a judgment on 22 February 2010, the criminal court of Tournai in Belgium dismissed all claims against Husqvarna in a case regarding a gas explosion on Husqvarna’s property in Ghislenghien, Belgium, in July 2004.
The ruling has been appealed by the public prosecutor, as well as by other parties, to the Court of Appeal.
The appellate proceedings are expected to commence in the second half of 2010.
Settlement of engine-capacity lawsuit
On 1 March 2010, Husqvarna and a number of other parties reached a settlement in a lawsuit in a Federal District Court in Illinois, USA, regarding alleged inaccurate specification of engine capacity in lawn mowers. The lawsuit, which has been pending since 2004, will thus be withdrawn.
The other parties are manufacturers or sellers of lawn mowers or engines for lawn mowers. The settlement includes more than 65 similar or parallel lawsuits in all 50 states in the US. Husqvarna’s net settlement cost amounts to approximately SEK 50m (USD 7m) and was charged against operating income in the first quarter of 2010.
Husqvarna agreed to the settlement in order to avoid a prolonged and expensive legal process in which the results were uncertain. The Group continues to deny that there is any justification for the claims against the company. The settlement is subject to court approval in the US.
EVENTS AFTER 31 MARCH 2010
Decision to close production site in Greece
A decision has been taken to close the Group’s production site for construction products in Greece.
Together with logistical rationalization of Construction’s operations in Belgium, the initiatives are estimated to cost SEK 50m and will be charged to operating income in the second quarter.
Annual savings from the initiatives are estimated at SEK 20m with full effect as of 2012.
President Barack Obama's goal of doubling U.S. exports over the next five years will be difficult to meet, business leaders and economists say, because of the lack of momentum on demolishing trade barriers and the shift by more American companies toward producing overseas.
U.S. exporters want Washington to put more pressure on trading partners to eliminate tariffs, crack down on intellectual-property violations and take a harder line on trading partners' currency policies. American firms say stronger action by the federal government could substantially boost prospects for U.S. exports.
Todd Teske, chief executive of Briggs & Stratton Corp., a Wauwatosa, Wis.-based small-engine maker, says he is partly counting on more exports to rebuild his sales after the recent downturn. Briggs & Stratton already receives about a fifth of its $2 billion in revenue from sales abroad, particularly in Europe. Mr. Teske calls the U.S. goal of doubling exports a "lofty goal" and one worth pursuing. But he's realistic. "It seems like every country or region wants to fuel their recovery plan with exports," he said.
