Briggs and Stratton Move Frees Up Working Capital

Milwaukee – August 17 -- Although Briggs and Stratton Corp. expects to lose $100 million in revenue this fiscal year from pulling some of its lawn and garden products from national mass retailers, the move came down to profitability, president and chief executive officer Todd Teske told The Business Journal.

The Wauwatosa-based manufacturer of small engines and outdoor power equipment made the announcement in April, effective in the company’s fiscal 2013, which began in July.

The company is no longer placing its walking lawn mowers and riding tractor mowers in national retailers, primarily Walmart, Lowe’s, Home Depot and Sears, Teske said.

“The profitability wasn’t where it needed to be,” Teske said in an interview. “Yes, it’s hard to take the revenue hit, but our margin profile will look a lot better if we don’t ultimately sell these products to the mass retailers.”

Although profits were down in its fiscal fourth quarter, Briggs and Stratton posted full 2012 fiscal year net income including restructuring charges of $29 million, or 57 cents per share, compared with $24.4 million, or 48 cents per share, in the previous year.

Consolidated net sales were $2.1 billion in fiscal 2012, a 2 percent decrease from the previous year. The company predicts fiscal 2013 consolidated net sales of $1.95 billion to $2.15 billion.

Teske called pulling lawn and garden products from national retailers an economic and competitive decision.

“There’s others in this industry who are in a better position from a profitability standpoint, and really their business models lend themselves to serving big-box retailers,” Teske said. “What we did was we said we’re better off putting our resources in other places and really supporting the folks that can serve those big-box retailers through our engine business.”

Briggs and Stratton has said the move is expected to free up $40 million to $80 million of working capital.

But customers still will be able to see the company’s diamond-and-bar logo at national chain stores. The company’s engines segment will continue to serve lawn and garden equipment manufacturers that provide products to these retailers, and Briggs and Stratton will still sell portable and standby generators and pressure washers through the U.S. mass retail channel.

The company also will focus more on selling higher-end lawn and garden products through its network of Simplicity, Snapper and Ferris dealers and regional retailers. Those dealers include Wales Lawn and Garden, and regional retailers include Mills Fleet Farm, Teske said.

“We think that we can really serve the market well from that perspective,” Teske said.

He stressed that the products being phased out of national mass retailers represent a “small segment of everything that we do.”

“We are not exiting lawn and garden, period,” Teske said.

 www.bizjournals.com 

Briggs And Stratton Corporation Reports Results For The Fourth Quarter And Fiscal 2012

Highlights:

• Fiscal 2012 consolidated net sales were $2.1 billion, a decrease of 2.1% from fiscal 2011. Fourth quarter fiscal 2012 consolidated net sales were $501.2 million, or 17.2% lower than the fourth quarter of fiscal 2011.
• Fiscal 2012 consolidated net income was $29.0 million, an increase of 19.1% from fiscal 2011. Fiscal 2012 fourth quarter consolidated net loss was $8.4 million, an improvement of 52.8% from the fourth quarter of fiscal 2011.
• The Company recorded pre-tax restructuring charges of $30.1 million ($19.3 million after tax or $0.40 per diluted share) and $49.9 million ($28.8 million or $0.58 per diluted share) during the three and twelve months ended July 1, 2012, respectively.
• Adjusted net income for fiscal 2012 was $57.8 million, which was $5.4 million lower than fiscal 2011 adjusted net income.
• Adjusted net income for the fourth quarter of fiscal 2012 was $10.8 million, which was $5.7 million lower than the fourth quarter of fiscal 2011 adjusted net income.
• Quarterly dividend increased by 9% to $0.12 per share.
• Board of Directors authorizes $50 million increase of share repurchase program.

"This lawn and garden season presented significant headwinds for our two largest markets, North America and Western Europe," commented Todd J. Teske, Chairman, President and Chief Executive Officer of Briggs and Stratton Corporation. "The exceptionally severe drought negatively impacted sales to much of North America and more than offset the favorable growing conditions present in the early spring. In addition, consumer sentiment in North America and Europe remains very cautious." Teske continued, "Despite these market challenges, we are pleased that our Products Segment substantially increased profitability in fiscal 2012 through operational efficiency improvements and higher sales and production volumes."   

Consolidated Results:

Consolidated net sales for the fourth quarter of fiscal 2012 were $501.2 million, a decrease of $104.0 million or 17.2% from the fourth quarter of fiscal 2011. Fiscal 2012 fourth quarter consolidated net loss was $8.4 million, or $0.18 per diluted share. The fourth quarter of fiscal 2011 consolidated net loss was $17.8 million or $0.36 per diluted share.

Included in the consolidated net loss for the fourth quarter of fiscal 2012 were pre-tax charges of $30.1 million ($19.3 million after tax or $0.40 per diluted share) related to previously announced restructuring actions. Included in the consolidated net loss for the fourth quarter of fiscal 2011 was a $49.5 million non-cash pre-tax charge ($34.3 million after tax or $0.68 per diluted share) associated with the impairment of Products Segment goodwill. After considering the impact of the restructuring charges and goodwill impairment, adjusted consolidated net income for the fourth quarter of fiscal 2012 was $10.8 million or $0.22 per diluted share, which was $5.7 million or $0.10 per diluted share lower compared to the fourth quarter fiscal 2011 adjusted consolidated net income of $16.5 million or $0.32 per diluted share.

Consolidated net sales for fiscal 2012 were $2.1 billion, a decrease of $43.5 million, or 2.1% when compared to fiscal 2011. Fiscal 2012 consolidated net income was $29.0 million, or $0.57 per diluted share. Fiscal 2011 consolidated net income was $24.4 million, or $0.48 per diluted share.

Included in consolidated net income for fiscal 2012 were pre-tax charges of $49.9 million ($28.8 million after tax or $0.58 per diluted share) related to the aforementioned restructuring actions. Included in consolidated net income for fiscal 2011 was the aforementioned $49.5 million non-cash pre-tax goodwill impairment charge ($34.3 million after tax or $0.68 per diluted share), a $3.5 million pre-tax charge ($2.2 million after tax or $0.04 per diluted share) related to restructuring actions announced in fiscal 2011 and $3.9 million of additional pre-tax costs ($2.4 million after tax or $0.05 per diluted share) associated with the refinancing of our Senior Notes.

After considering the impact of items related to the restructuring charges, goodwill impairment and debt refinancing, adjusted consolidated net income for fiscal 2012 was $57.8 million or $1.15 per diluted share, which was $5.4 million or $0.10 per diluted share lower compared to fiscal 2011 adjusted consolidated net income of $63.2 million or $1.25 per diluted share.

Engines Segment

Engines Segment fiscal 2012 fourth quarter net sales were $322.5 million, which was $69.8 million or 17.8% lower than the fourth quarter of fiscal 2011. This decrease in net sales was primarily driven by a 19% reduction in shipment volumes to lawn and garden OEMs in the North American and European markets resulting from drought conditions in North America and economic uncertainty in Europe leading to reduced consumer purchases of lawn and garden equipment, an unfavorable mix of engines sold that reflected proportionately lower sales of units used on riding lawn mowers and unfavorable foreign exchange of $1.2 million, partially offset by improved engine pricing.

The Engines Segment adjusted gross profit percentage for the fourth quarter of 2012 was 21.1%, which was 0.3% lower compared to the fourth quarter of fiscal 2011. The adjusted gross profit percentage was unfavorably impacted by 1.6% resulting from increased commodity costs and 1.8% from unfavorable absorption on 26% lower production volumes. This reduction was partially offset by a 1.1% benefit due to reduced manufacturing costs and 2.0% from improved engine pricing and a favorable mix of engines sold.

The Engines Segment engineering, selling, general and administrative expenses were $45.0 million in the fourth quarter of fiscal 2012, a decrease of $10.9 million from the fourth quarter of fiscal 2011 due to a reduction in employee compensation costs in fiscal 2012 and a planned reduction of spend in advertising costs and other professional services in response to the softness in the global markets. 

Engines Segment net sales for fiscal 2012 were $1.3 billion, which was lower by $89.6 million or 6.4% compared to fiscal 2011. This decrease in net sales was primarily driven by an 11% reduction in shipment volumes of engines to OEMs for lawn and garden products in the North American and European markets due to drought conditions in North America and economic uncertainty in Europe leading to reduced consumer purchases of lawn and garden equipment and unfavorable foreign exchange of $8.7 million primarily related to the Euro. This was partially offset by increased engine pricing, a favorable mix of product shipped that reflected proportionally larger volumes of units used on snow throwers and portable and standby generators.

The Engines Segment adjusted gross profit percentage for fiscal 2012 was 20.2%, which was 2.6% lower compared to fiscal 2011. The adjusted gross profit percentage was unfavorably impacted by 0.8% due to reduced absorption on a 13% reduction in production volumes, 0.5% from unfavorable foreign exchange, and 3.0% resulted from higher manufacturing spending associated with rising commodity costs and start-up costs of $8.6 million associated with launching our Phase III emissions compliant engines. This reduction was partially offset by a 1.7% benefit due to improved engine pricing and a favorable mix of products sold.

The Engines Segment engineering, selling, general and administrative expenses were $179.7 million in fiscal 2012, a decrease of $18.9 million from fiscal 2011 primarily due to lower employee compensation expense and a planned reduction of spend in advertising costs and professional services in response to the softness in the global markets. 

Products Segment:

Products Segment fiscal 2012 fourth quarter net sales were $220.1 million, a decrease of $37.4 million or 14.5% from the fourth quarter of fiscal 2011. The decrease in net sales was primarily due to lower sales volumes of portable generators due to fewer spring storms in fiscal 2012, reduced sales of riding lawn and garden equipment due to drought conditions and reduced sales volume in the international markets. This decrease is partially offset by higher shipments of pressure washers in fiscal 2012 and improved pricing.

The Products Segment adjusted gross profit percentage for the fourth quarter of 2012 was 11.4%, which was 2.8% higher compared to the fourth quarter of fiscal 2011. The adjusted gross profit percentage was improved by 3.2% due to increased pricing and a favorable mix of lawn and garden sales through the dealer channel and by 2.8% from reduced manufacturing spending. This was partially offset by benefits of 2.8% from higher commodity costs and 0.4% from unfavorable foreign exchange.

The Products Segment fiscal 2012 fourth quarter engineering, selling, general and administrative expenses were $30.7 million, an increase of $2.0 million from the fourth quarter of fiscal 2011. The increase was attributable to greater selling expense to support investments in international growth, and higher employee compensation expense.

Products Segment net sales for fiscal 2012 were $952.1 million, an increase of $73.1 million or 8.3% from fiscal 2011. The increase in net sales was primarily due to increased shipments of portable and standby generators due to widespread power outages in the U.S. as a result of landed hurricane Irene and a subsequent snow storm on the United States East Coast earlier in the fiscal year, increased shipments of snow equipment after channel inventories were depleted from the prior selling season, improved pricing, a favorable mix of lawn and garden sales through the dealer channel and favorable foreign exchange of $2.3 million. This increase was partially offset by reduced shipment volumes of riding lawn and garden equipment domestically and reduced volume in the international markets. There were no landed hurricanes in fiscal 2011.

The Products Segment adjusted gross profit percentage for fiscal 2012 was 12.3%, which was 3.5% higher compared to the fourth quarter of fiscal 2011. The adjusted gross profit percentage improved by 3.1% from increased pricing and a favorable mix of lawn and garden sales through the dealer channel, 1.5% due to production operational improvements of $13.9 million and 1.7% resulted from improved absorption on higher production volumes. This was partially offset by a decrease of 2.8% due to increased commodity costs.

The Products Segment engineering, selling, general and administrative expenses were $110.7 million in fiscal 2012, an increase of $12.2 million from fiscal 2011. The increase was attributable to greater selling expense to support investments in international growth, higher employee compensation expense, and $0.7 million higher bad debt expense recorded in fiscal 2012 primarily attributable to distributors in the European market.

Corporate Items:

Interest expense for the fourth quarter of fiscal 2012 was flat compared to the same period a year ago as slightly lower average borrowings in fiscal 2012 were offset by slightly higher weighted average interest rates compared to a year ago. For fiscal 2012, interest expense was $4.8 million lower compared to fiscal 2011 due to $3.9 million of pre-tax charges associated with the refinancing of Senior Notes in fiscal 2011, which did not recur in fiscal 2012, as well as lower average outstanding borrowings at slightly higher weighted average interest rates in fiscal 2012.

The effective tax rate for the fourth quarter of fiscal 2012 was 37.0%, or comparable to the fourth quarter of fiscal 2011 effective tax rate of 37.3%. The effective tax rate for fiscal 2012 was 2.9% compared to 24.0% reported the same period one year ago. The decrease in the effective tax rate for fiscal 2012 compared to fiscal 2011 was primarily due to a net benefit of $5.6 million associated with restructuring charges incurred in connection with closing our Ostrava plant facility and a net benefit of $5.1 million due to the expiration of a non-U.S. statute of limitation period during fiscal 2012 and the settlement of U.S. audits.

Financial Position:

Net debt at July 1, 2012 was $71.9 million (total debt of $228.0 million less $156.1 million of cash), an increase of $53.6 million from the $18.4 million (total debt of $228.0 million less $209.6 million of cash) at July 3, 2011. Cash flows provided by operating activities for fiscal 2012 were $66.0 million compared to $156.9 million in fiscal 2011. The decrease in cash provided by operating activities was primarily related to a $31.6 million reduction in the decrease in accounts receivable compared to last year and cash contributions to the pension plan of $28.7 million in fiscal 2012. Approximately $19 million of the July 1, 2012 balance of accounts receivable is due to delayed funding under the Company's dealer inventory financing facility executed during fiscal 2012 with GE Capital, Commercial Distribution Finance. The delayed funding to the Company reduces the overall cost of funds.

Restructuring:

In January 2012, the Company announced plans to reduce manufacturing capacity through closure of its Newbern, Tennessee and Ostrava, Czech Republic plants as well as the reconfiguration of its plant in Poplar Bluff, Missouri. In April 2012, the Company announced plans to further reduce manufacturing costs through consolidation of its Auburn, Alabama manufacturing facility as well as the reduction of approximately 10% of the Company's salaried employees. During fiscal 2012, the Company completed manufacturing operations at its Newbern, Tennessee and Ostrava, Czech Republic plants, carried out the reconfiguration of the Poplar Bluff, Missouri plant and implemented the salaried employee reductions.

As noted previously, pre-tax costs of all restructuring actions totaled $30.1 million and $49.9 million in the fourth fiscal quarter and fiscal 2012, respectively. The total pre-tax costs associated with these restructuring actions are expected to be $60 million to $70 million.  In addition, the Company continues to anticipate annualized pre-tax savings associated with these restructuring actions of $30 million to $35 million in fiscal 2013 and $40 million to $45 million in fiscal 2014.  

Share Repurchase Program Increased:

As previously announced during the first quarter of fiscal 2012, the Board of Directors of the Company authorized up to $50 million in funds for use in a common share repurchase program with an expiration of June 30, 2013. As of the end of the fourth quarter of fiscal 2012, the Company repurchased approximately 2.4 million shares on the open market at a total cost of $39.3 million. There were no shares repurchased in fiscal 2011.

In August 2012, the Board of Directors authorized an additional $50 million in funds associated with the common share repurchase program and an extension of the expiration date to June 30, 2014. Share repurchases, among other things, allow the Company to offset any potentially dilutive impacts of share-based compensation. The common share repurchase program authorizes the purchase of shares of the Company's common stock on the open market or in private transactions from time to time, depending on market conditions and certain governing loan covenants. 

Dividend Increase:

The Company also announced that its Board of Directors declared an increase in the quarterly dividend to $0.12 per share from $0.11 per share on its Common Stock, payable on or after October 1, 2012 to Common Stock shareholders of record at the close of business on August 20, 2012. This represents a 9% increase compared to the prior quarterly dividend.

Outlook:

For fiscal 2013, the Company projects net income to be in a range of $60 million to $75 million or $1.25 to $1.55 per diluted share prior to the impact of any additional share repurchases and costs related to our announced restructuring programs.

The Company previously indicated that it would exit sales of lawn and garden products to national mass retailers. The estimated impact of exiting this business in fiscal 2013 is approximately $100 million of reduced sales. In addition, sales in fiscal 2012 were favorably impacted by sales of portable and standby generators in response to power outages during hurricane Irene and significant east coast snow storms; however, we do not include in our annual projections revenues and profitability for significant weather events.

Additionally, drought conditions in a significant portion of the U.S. have impacted the 2012 lawn and garden season considerably in the U.S. during May through July and certain projections are that dry conditions may persist at least into the fall in the U.S. The potential impact of storm activity and the dry conditions in the U.S. could cause wide variability in our sales results for fiscal 2013.

Accordingly, our fiscal 2013 consolidated net sales are projected to be in a range of $1.95 billion to $2.15 billion. Operating income margins are expected to improve over fiscal 2012 and be in a range of 5.1% to 5.6% and reflect the positive impacts of the restructuring programs announced during fiscal 2012. Interest expense and other income are estimated to be approximately $18 million and $7 million, respectively. The effective tax rate is projected to be in a range of 31% to 34% and capital expenditures are projected to be approximately $50 million to $60 million.   

Why Shopping (Retailing) Will Never Be the Same

SANTA CLARA, Calif. – August 8 -- Nola Donato has seen the future of retail, and it is in a Magic Mirror.

The Intel scientist has designed a high-tech mirror that shows how clothes look on a consumer who simply stands in front of an LCD monitor. Parametric technology simulates body type and how fabrics fit — based on weight, height and measurements.

Think of it as a digital fitting room. The concept is three to five years from fruition but could open the door for Intel in the retail market.

The convergence of smartphone technology, social-media data and futuristic technology such as 3-D printers is changing the face of retail in a way that experts across the industry say will upend the bricks-and-mortar model in a matter of a few years.

"The next five years will bring more change to retail than the last 100 years," says Cyriac Roeding, CEO of Shopkick, a location-based shopping app available at Macy's, Target and other top retailers.

Within 10 years, retail as we know it will be unrecognizable, says Kevin Sterneckert, a Gartner analyst who follows retail technology. Big-box stores such as Office Depot, Old Navy and Best Buy will shrink to become test centers for online purchases. Retail stores will be there for a "touch and feel" experience only, with no actual sales. Stores won't stock any merchandise; it'll be shipped to you. This will help them stay competitive with online-only retailers, Sterneckert says.

Branding strategist Adam Hanft says this all might sound futuristic, but much of it is rooted in reality. He says satellite stores will open in apartment buildings and office centers. FedEx and UPS will delve deeper into refrigerated home delivery. Google trucks will deliver local services. Clothing — even pharmaceuticals — will be produced in the home via affordable 3-D printers.

"Every waking moment is a shopping moment," says Steve Yankovich, head of eBay's mobile business, which expects to handle $10 billion in transactions this year. "Anytime, anywhere."

Game-shifting tech — such as smartphones, location-based services, augmented reality and big data, which makes sense of all the data on mobile devices and social networks — will most assuredly upend several multibillion-dollar retail markets, forcing retailers to adapt or die, say venture capitalists and analysts.

Eventually, 3-D printers will let consumers produce their own towels, utensils and clothes. While in their infancy, the devices have been used to print hearing aids, iPad cases and model rockets, says Andy Filo, an expert on 3-D printers. The technology is several years away, however, from being widely available and affordable, he says.

And almost all of it will be paid with … your phone.

"Cash will still exist, but no one will use it," says Jim Belosic, CEO of ShortStack, a self-service, social-media platform that lets users create custom Facebook tabs. "Carrier payments and the swipe of a smartphone will do the trick."

Technology advances won't just change the physical appearance of stores for consumers, but should transform the retail workforce into more of a customer-friendly field, too. Retailers who don't adapt quickly and successfully risk losing out, Sterneckert says.

What might this evolution mean for the nation's malls and shopping centers and people whose paychecks depend on today's retail model? Experts aren't predicting the end of the in-store experience, but it stands to reason that as with other industries, technology might improve efficiency while setting retailers on a path toward a leaner workforce.

Retail's revolution

Just as online retailers led a revolution in retail shopping in the 1990s, bricks-and-mortar retailers are ready to use technology to fight back.

By the time you walk into a store in the near future, the employees there will probably know what you want to buy, based on information on your trusty phone or tablet. Merchants will know your gender, age, race and income, analyst Sterneckert and others say.

Once you're inside, imagine waving your smartphone over products and seeing what's inside. Holding the phone over a DVD's bar code might activate a movie trailer on the phone's screen, for example.

All of this will be made possible with so much personal data on smartphones, and the ability of merchants to parse it to gauge who is just browsing and who's on a mission to buy. The clerk greeting you at the door will be able to make targeted suggestions. Sound Orwellian? All of this is done online today through search engines and cookie technology. Putting a personal touch on one's in-store experience could mean big bucks for bricks-and-mortar retailers, according to John McAteer, head of retail at Google.

There might be less merchandise inside, as bricks-and-mortar stores offer only special products that distinguish them from Web competitors.

"The first 15 years of online shopping was about making it easier for people to find and purchase items they were looking for," says David Fisch, director of platform partnerships at Facebook, which is working closely with retailers. "Now, it's about helping you find what you may not know about, based on your social (media profile)."

With computer chips seemingly embedded in everything — goods, smartphones and the like — merchants will not only know what's in your shopping basket, but what you plan to buy next.

Target, for example, already combs shopping data via purchases, e-mail, activity on Target.com accounts and more to determine which customers are pregnant, so it can sell goods popular to them such as orange juice, according to journalist Charles Duhigg, who outlined the practice in his book, The Power of Habit.

"There is a trade-off between privacy and convenience, which I think will only accelerate," Duhigg says. "People always choose convenience and don't realize the cost of privacy."

Target spokeswoman Molly Snyder acknowledges it uses "research tools that help us understand guest shopping trends … (but) we take our responsibility to protect our guests' trust in us very seriously."

Increasingly, where one shops will be irrelevant. Phones and bar codes will let consumers shop from their kitchens — a digital screen on a refrigerator, for example, will allow orders from home, with a delivery service dropping off the produce. "A screen is a screen is a screen," says Jill Puleri, of IBM's Global Business Services retail-consulting practice.

At the CeBit computer trade show in March in Hanover, Germany, an exhibit of a futuristic airport gave new meaning to duty-free shopping. Within a few years, travelers will be able to touch a store window containing a digital menu to order goods for shipping.

Subways in South Korea, the United Kingdom and elsewhere already contain virtual stores in which consumers wave their smartphones at bar codes to order. The goods are delivered before the commuter arrives home.

"Retailers are asking the question, 'How do we address the demand for now?' " Gartner's Sterneckert says. "Customers want their goods by the time they get home from work."

Driving the future

All of this will be possible within several years because of:

•Smartphones. Location-based services and the growing adoption of Near Field Communication — a wireless technology standard for one-tap payment — will turn consumers' phones into stand-ins for credit, debit and loyalty cards, says Bill Gajda, head of mobile at Visa. Meanwhile, Nordstrom, among many, is phasing out cash registers this year in favor of smartphones with store-designed apps for purchases and inventory.

•The death of cash. If credit cards diminished use of cash in the 1950s, powerful smartphones and tablets will hasten its demise. Both are reshaping the relationship between merchant and customer as newfangled wallets, and each is edging toward becoming credit card readers and (cash) registers.

"Cash has dug in its heels for small-value transactions, but with the arrival of each new tech offering (providing) an alternative way to pay for little stuff — text your parking payment, Starbucks mobile app, Square, etc. — cash is being further and further marginalized," says David Wolman, author of the book The End of Money.

•Augmented reality. The increasingly popular technology adds a visual layer of information on top of surfaces such as a mirror. One breakthrough might come at the mall, with AR mirrors that let consumers shop based on data projected on glass, say social-media experts such as Brian Solis.

Another intriguing option is Google Glass, which puts computer-processing power, a camera, a microphone, wireless communications and a tiny screen into a pair of lightweight eyeglasses. Ultimately, Google hopes the "smart" glasses — which are a few years away — will be able to access information in real time, including the ability to identify locations and provide additional information about your whereabouts.

Harnessing social media

As smartphones and tablets grow in popularity, retailers are trying to get their hands around Facebook, Twitter and social media, and cater to consumers, says Niraj Shah, CEO of Wayfair, an e-commerce company that recently passed Crate & Barrel to become the No. 2 Internet retailer of home products. It racked up a record $500 million in revenue last year.

Only 8% to 13% of retail shopping in the USA is done online. Impressive as future retail technology might look, it will take good old-fashioned customer service to boost those figures, says Will Young, who heads Zappos Labs.

Some of that will come because of original editorial content from commerce sites such as Zappos, Fab.com and Etsy that offer shoppers advice on products and services. Zappos has beefed up its content with advice on fashion, trends, outfits and lifestyles.

Software giant SAP's "clienteling" application, for instance, lets Burberry track and analyze customers' buying and browsing patterns, giving sales reps the information they need to instantly make specific recommendations tailored to that person's taste. For the first time, retailers can offer consumers the same personalized experience in the store that they're used to when shopping online.

In the physical world, the same rules apply. Consumers won't need a smartphone to get an interactive glimpse of what they want. Digital billboards on every conceivable surface will do the trick.

Thin, energy-efficient LED displays are being tested to show video on everything from a curved wall at the NASCAR Museum in Charlotte to subways and airports. China, home to some of the world's largest buildings, is a prime candidate for even larger displays.

"The pace of change has never been faster," says Google's McAteer. "The big question is (turning) physical stores into a showplace, distribution center and place for consumers to have fun."

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Rotary Ventures Into eCommerce With the Launch of Online Store

SAN LUIS OBISPO, Calif., Aug. 7 -- Rotary Corporation, the world's largest supplier of aftermarket parts for outdoor power equipment, has launched online stores for the US and Canada using Shopatron's retail-integrated eCommerce solution. Now shoppers in North America can buy any of Rotary's replacement parts and small engine components direct from the company's online store, and have the products delivered to them through an authorized Rotary dealer.

The new partnership gives Rotary a world-class, hosted eCommerce solution that supports the company's extensive network of dealers and distributors. Participating Rotary dealers across North America will fulfill online orders from their current inventory using the Shopatron Order Exchange.

"Shopatron is the perfect solution for Rotary because it allows us to sell online, while at the same time, promote our dealers," said Rotary eCommerce and Web Marketing Manager Caylee Bickmore. "By passing online orders to the dealers, we are providing them with an additional source of revenue and access to new customers. Ultimately, the program will result in a higher inventory turnover for dealers and increased sales for everyone."

Rotary joins more than two dozen garden and tool brands on the Shopatron platform, nine of which have launched online stores in 2012. These manufacturers share online orders with over 500 retail partners participating on the Shopatron order exchange.

To learn more about Shopatron and its eCommerce solutions for branded manufacturers and multi-channel retailers, visit ecommerce.shopatron.com or call 866-625-5050.

About Rotary Corporation

Rotary Corporation is the world's largest supplier of commercial strength aftermarket parts for outdoor power equipment. They take pride in the fact that 80 percent of their products are produced in the US. The extensive product line includes lawn mower accessories such as blades, filters, spark plugs, wheels, trimmer line, and small engine components. The company strives to introduce new and improved products for the increased success of the Green Industry.

About Shopatron

Shopatron is the world's only eCommerce solution that increases sales online, while also increasing sales through retail stores. Shopatron's eCommerce and order management solution provides an innovative and flexible approach to online sales that matches the unique needs of branded manufacturers, multi-channel retailers, and online marketplaces. Founded in 2001, Shopatron works with over 1,000 branded manufacturers and 20,000 retail partners across more than 40 industries. Clients include top brands such as Bosch, Suzuki, Polaroid, Mizuno, Ducati, JL Audio, K2, Intermix and Sport Chalet. The company has offices in San Luis Obispo, California and Swindon, United Kingdo

Blount Announces 2nd Quarter 2012 Results, Updates Outlook for 2012

• Second quarter 2012 sales increased 19% compared to the prior year but declined 8% when excluding sales associated with acquired businesses

• Full year outlook for 2012 revised to reflect softening demand, primarily in European markets

PORTLAND, OR -- Aug. 7 -- Blount International, Inc. today announced results for the second quarter ended June 30, 2012, and updated its outlook for 2012.

Results for the Quarter Ended June 30, 2012

Sales in the second quarter were $239.1 million, a 19% increase from the second quarter of 2011.

Excluding the impact of businesses acquired since April 1, 2011, sales declined 8%. Operating income for the second quarter of 2012 was $23.8 million compared to $24.8 million in the prior year. Second quarter net income was $13.1 million, or $0.26 per diluted share, compared to $13.8 million, or $0.28 per diluted share, in the second quarter of 2011.

"Our top line growth and profitability improved from the first quarter of this year, but our sales were lower in the quarter compared to our record second quarter in 2011 when excluding acquisitions. We experienced slower demand in key markets, particularly in Europe due to current economic uncertainty," stated Josh Collins, Blount's Chairman and Chief Executive Officer. "As we expected for the quarter, we incurred excess costs associated with completing our distribution and log splitter assembly facility consolidation in Kansas City, although at a reduced rate compared to the first quarter of this year. We believe these costs are largely behind us."

Mr. Collins continued, "Our top priorities are managing through the current, soft market environment and continued integration of the businesses we acquired in the last two years. Reduced demand due to slowing economic activity in Europe and other key regions and the impact of drought conditions in the United States have led us to reduce our sales and profit outlook for 2012."

The consolidation of the SpeeCo distribution and assembly operations and the previous Forestry, Lawn, and Garden ("FLAG") distribution center into Blount's new Kansas City distribution and assembly facility began in late 2011 and is largely completed. The consolidation will provide synergies and significant capacity scalability in the FLAG and Farm, Ranch, and Agriculture ("FRAG") businesses and is expected to provide incremental assembly capacity for the SpeeCo product line.

Segment Results

Blount operates primarily in two business segments – the Forestry, Lawn, and Garden ("FLAG") segment and the Farm, Ranch, and Agriculture ("FRAG") segment. The Company reports separate results for the FLAG and FRAG segments. Blount's Concrete Cutting and Finishing ("CCF") business is included in "Corporate and Other."

Forestry, Lawn, and Garden

The FLAG segment reported second quarter 2012 sales of $166.3 million. Second quarter 2012 sales decreased 7% from the second quarter of 2011, and declined 9% when excluding businesses acquired since April 1, 2011. For comparability, all sales statistics are quoted excluding the impact of acquired businesses for the period during which Blount did not own the acquired business. A 27% decline in second quarter 2012 sales in Europe and 3% decline in Asia generated the sales downturn compared to the prior year, with a 10% improvement in U.S. sales partially offsetting the Europe and Asia weakness. Average pricing improved as price increases in place since mid-2011 improved second quarter 2012 sales on a comparative basis. The change in segment sales for the comparable second quarter periods is illustrated below, with sales of $4.1 million from businesses acquired since April 1, 2011, presented entirely as acquired volume increase.

Segment backlog was $170.8 million at June 30, 2012, a decrease of 6% from the $182.4 million on December 31, 2011. The reduction in backlog relates to improvement in our ability to deliver orders more timely and a reduction in order intake.

Segment contribution to operating income and Earnings Before Interest, Taxes, Depreciation, Amortization and certain charges ("Adjusted EBITDA") was $29.3 million and $36.1 million, respectively, for the second quarter of 2012. While segment Adjusted EBITDA margin improved by 70 basis points, segment contribution to operating income and Adjusted EBITDA decreased on an absolute basis by $1.4 million and $1.5 million, respectively, for the second quarter of 2012 versus 2011. Increased average selling prices had the largest positive impact on segment operating income; however, the volume decline and additional costs (as outlined below) more than offset the average pricing benefit. A reconciliation of FLAG contribution to operating income for the comparable second quarter periods is presented below.

The benefit of improved currency exchange rates was driven primarily by a stronger U.S. Dollar versus the Canadian Dollar and Brazilian Real, which resulted in lower U.S. Dollar equivalent manufacturing and overhead costs in the Brazilian and Canadian operations. Cost/mix spending was higher driven mostly by the increase in personnel in key areas such as supply chain compared to the second quarter of 2011, offset by lower SG&A spending, primarily in the area of incentive compensation.

Farm, Ranch, and Agriculture

The FRAG segment reported second quarter 2012 sales of $66.3 million. Second quarter 2012 sales increased $50.3 million from the second quarter of 2011, driven entirely by sales generated by acquired businesses and partially offset by a sales volume decline in the SpeeCo business unit. Excluding the impact of acquired businesses, sales declined 1%. The change in segment sales for the comparable second quarter periods is illustrated below, with sales from businesses acquired since April 1, 2011 of $50.5 million presented entirely as acquired volume increase. Sales from businesses acquired are represented primarily by sales of the Woods/TISCO business. Woods/TISCO sales were approximately equal compared to the prior year second quarter on a pro forma basis.

Segment backlog was $19.9 million at June 30, 2012, compared to $28.3 million at December 31, 2011. June 30, 2012, backlog includes $8.2 million related to businesses acquired in 2011.

Segment contribution to operating income and Adjusted EBITDA was negative $0.9 million and positive $3.4 million, respectively, for the second quarter of 2012.

While sales volumes were down slightly, average prices were up compared to the second quarter of 2011. The largest driver of reduced profit was unfavorable cost/mix performance of $7.2 million. Contributing to the cost/mix impact were increased freight charges, product quality and related warranty expense, and increased support cost. Incremental freight charges of $2.2 million were incurred to expedite material and parts shipments from foreign vendors, and accelerate deliveries of finished goods to customers. Support costs, primarily in the areas of supply chain and information systems, increased $1.4 million with planned investments in the infrastructure necessary to achieve long-term, strategic goals.

Charges related to evaluating the quality of a new log splitter product and increased product cost due to re-work generated an incremental $2.6 million of cost compared to the second quarter of 2011. The remaining cost/mix increase was primarily driven by higher product costs over the previous year. Acquired businesses had a net positive impact on segment contribution to operating income, partially offset by changes in acquisition accounting.

Corporate and Other

Corporate and other generated net expense of $4.5 million in the second quarter of 2012 compared to net expense of $6.1 million in the second quarter of 2011. The year-over-year decrease was due to lower SG&A spending, mostly in the area of incentive compensation, and slightly higher Concrete Cutting and Finishing profit. Partially offsetting the spending reduction in SG&A was $1.7 million of transition expenses associated with consolidation of the SpeeCo distribution and assembly and FLAG distribution operations into the new Kansas City distribution and log splitter assembly facility. Of the $1.7 million, approximately $1.3 relates to elevated personnel costs as the new distribution center operations were stabilized over the course of the second quarter. These personnel costs have been largely eliminated as of July 31, 2012.

Net Income

Second quarter 2012 net income declined primarily due to lower operating income, discussed above, including the impact of non-cash purchase accounting charges and the facility closure and restructuring charges. Partially offsetting the impact of operating income changes and purchase accounting charges were lower interest and other expenses. Net interest expense was $4.3 million in the second quarter of 2012 versus $4.8 million in the second quarter of 2011. The impact of lower interest rates more than offset higher average borrowing levels in the second quarter of 2012 versus the 2011.

Cash Flow and Debt

As of June 30, 2012, the Company had net debt of $473.7 million, a decrease of $5.2 million from March 31, 2012 and an increase of $5.4 million compared to December 31, 2011. The decrease in net debt since the end of the first quarter 2012 was driven mostly by free cash generation of $5.9 million. Free cash in the second quarter of 2012 was the result of cash generated by operations of $22.0 million offset by net capital expenditures of $16.1 million. Net capital expenditures were $8.2 million larger in the second quarter of 2012 than the second quarter of 2011.

The Company had incremental capital spending of $4.8 million at the Fuzhou China manufacturing plant related to capacity expansion. Additionally, an incremental $2.4 million was spent at the Canada based manufacturing plant, mostly related to capacity increases. Also, capital spending rates increased as a result of maintenance capital spending for FLAG manufacturing equipment.

Free cash generated in the second quarter of 2012 declined by $9.8 million compared to the second quarter of 2011 primarily as a result of increased capital equipment spending as well as an increase in working capital levels compared to the prior year. Higher working capital levels were driven mostly by an increase in inventory as the Company consolidated into the Kansas City warehouse and prepared for the seasonally larger third quarter FRAG selling cycle.

The Company defines free cash flow as cash flows from operating activities less net capital spending. The ratio of net debt to pro forma last-twelve-months ("LTM") Adjusted EBITDA was 3.2x as of June 30, 2012, which increased from 2.8x at December 31, 2011. The increase in leverage from the end of 2011 is primarily the result of increased inventory and reduced year-to-date 2012 profitability resulting in increased net debt.

On August 3, 2012, the Company amended the terms of its Senior Credit Facility. The amendment included a change to the leverage limits and a modification of certain other covenants. There was no change to the size, rates of interest, or maturity dates of the facility. The amended terms are designed to provide operating flexibility as the Company navigates the current decline in demand in key markets. The amendment is effective immediately and the Company expects to incur associated fees and expenses of approximately $1.3 million in the third quarter of 2012.

2012 Financial Outlook

As a result of recent market conditions, particularly due to economic uncertainty in Europe and drought conditions in North America, the Company has reduced its sales outlook for 2012 and now expects sales to be between $900 million and $940 million for the year.

Full year 2012 operating income is expected to be between $77.5 million and $87.5 million. The expectation for 2012 assumes that favorable foreign currency exchange rates will improve operating income on a year-over-year basis by between $1.0 million and $2.0 million and reduced steel prices will further improve year-over-year operating income between $1.0 million and $2.0 million, with the improvement coming primarily in the last half of the third quarter and in the fourth quarter.

The outlook for 2012 operating income also includes estimated non-cash charges as a result of acquisition accounting of approximately $16 million. Free cash flow for 2012 is expected to range between $17 million and $23 million, after approximately $50 million of capital expenditures. Net interest expense is expected to be between $17 million and $18 million in 2012, and the effective income tax rate for continuing operations is expected to be between 34% and 37% in 2012.

Blount is a global manufacturer and marketer of replacement parts, equipment, and accessories for consumers and professionals operating primarily in two market segments: Forestry, Lawn, and Garden ("FLAG"); and Farm, Ranch, and Agriculture ("FRAG"). Blount also sells products in the construction markets and is the market leader in manufacturing saw chain and guide bars for chain saws. Blount has a global manufacturing and distribution footprint and sells its products in more than 115 countries around the world. Blount markets its products primarily under the OREGON®, OREGON® PowerNow™, Carlton®, Woods®, TISCO, SpeeCo®, and ICS® brands.

Toro Celebrates 50 Years in Uderground Irrigation

RIVERSIDE, Calif. – August 1, 2012 -- Fifty years ago today, The Toro Company purchased a Riverside, California-based company, called Moist O'Matic, which manufactured plastic irrigation products. That purchase proved a wise investment and gave Toro its start in the underground irrigation business. Today, Toro is one of the leading manufacturers of irrigation products around the world.

It all started in 1962 when Moist O'Matic had made revolutionary advancements in the use of plastics and new designs to make water-efficient sprinklers, valves, and control systems. Toro's 4th president, David Lilly, initiated the purchase of Moist O'Matic and hired John Singleton, a charismatic irrigation contractor he had met on a golf course, to pioneer Toro's entry into golf irrigation.

Initially, John made little progress but, fortunately, in 1969, John and the Toro irrigation team made several breakthroughs with golf superintendents, ultimately convincing them that plastic sprinkler systems were superior to traditional brass and iron systems. A mere three years later, Lilly could state in the annual report that Toro had become "the most widely used automatic equipment in golf course irrigation."

Throughout the next several decades, The Toro Company made multiple acquisitions to enter new markets and product categories, and bolster its position in the industry. This included:

-- Hardie(R) Irrigation (1996)

-- EICON Industrial Controls (2001)

-- R and D Engineering, a leading manufacturing of rain sensor devices (2003)

-- Rain Master(R) (2007)

-- Turf Guard(R) (2008)

Today, The Toro Company owns over 225 irrigation patents and manufactures a complete line of irrigation solutions including sprays, nozzles, rotors, valves, controllers, sensors, software, services and more. Through its distribution network, Toro delivers those solutions to homeowners, sports fields, municipalities, golf courses and agricultural growers around the world. The Toro irrigation business is still headquartered in Riverside, California, and remains dedicated to the same core values that made it thrive years ago--high quality, customer-valued innovation and relationships.

As Phil Burkart, vice president and general manager for Toro's Irrigation Business, said, "Our 50 years in irrigation is something to be very proud of. We are withstanding the test of time as well as pushing ourselves daily to be solution providers through innovation, constantly challenging ourselves to eliminate waste and focus on quality, while growing and enhancing our customer relationships."

Though many things have changed over the last five decades, one thing has remained the same - Toro's unending passion to provide customers with high quality, innovative solutions. That's why, even during economically uncertain times, Toro has continued to invest in a portfolio of Precision(TM) Irrigation products that upgrade existing systems to the latest, water-saving technology available.

As Toro looks to the next 50 years, customers can continue to count on Toro to be there, helping them care for their landscapes when they want, the way they want, better than anyone else. As Toro's first president, John Samuel Clapper, was fond of saying, ""The strength of any institution rests solely in the good will of the people with whom they deal. You can replace anything except the good will of your customers."

Lawns, The Quiet Victims of Recession

August 2 -- Cautious consumers often look for places to cut, but one quiet victim of the recession has the opposite problem. Even amid recovery, lawns are often left untended.

“I just thought my money was being wasted,” said Dave Pilon, 42, director of sales at Bouvier Insurance in Connecticut. Mr. Pilon estimated he could save about $300 a year doing lawn treatments himself after he wasn’t impressed by professional services.

“My lawn absolutely ended up becoming a disaster,” he said, describing a yard taken over by crab grass in the past year. Mr. Pilon is signing a contract with another company for lawn seeding and maintenance, but will continue to mow his lawn as he has always done.

Landscapers like K and H Lawn Services said that since the recession, customers have been more conscious about cost and ask more frequently for quotes. Basic mowing for a 3,000 square-foot yard starts at $900 annually, according to Kris Hjort, K and H chief executive officer, but services like fertilizer applications cost extra.

The Virginia-based company maintains 600 residences weekly in the suburbs of Washington D.C. and has grown from 30 staff members in 2010 to 40. Starting last year, business finally started picking up with 7% to 8% growth in services, said Mr. Hjort. “People are coming back to professional lawn services and spending more money,” he said.

Tanya Ash, 46, a homeowner in Dublin, Ohio, switched to professional care two years ago after she decided her time was better spent working as an interior designer instead of mowing, but continued pruning on her own to save money.

“Quite honestly I thought was doing a great job doing it myself until the tree came down,” said Ms. Ash, who lost one of several trees on her quarter-acre yard after a recent storm. Ms. Ash spends $30 a week for mowing, but recently paid $1,000 for tree and shrub maintenance.

Stihl Inc., which manufactures power equipment including grass and hedge trimmers, has benefited from an expanding do-it-yourself crowd looking to take on smaller jobs like pruning and trimming. The company is on track for its third consecutive year of record turf-related sales since 2009. Roger Phelps, Stihl promotional communications manager, said homeowners are spending as much as 550 for professional trimmers instead of cheaper, consumer models.

Homeowners view professional equipment as investments they can pay off after a year or so of use, said Daniel Ariens, president and chief executive officer of Ariens Co., which produces mowers and snow blowers. During the recession, consumer sales jumped with homeowners opting for commercial mowers which cost $4,000 to $10,000 compared to consumer riding models that start at $1,000.

Ariens’ consumer demand has since grown at a slower pace, but commercial sales have continued rising, up 25% this year. “Consumers are slowly coming back to hiring landscape contractors,” said Mr. Ariens.

Landscapers, however, are cautious to reinvest as customers trickle back — repairing existing equipment and holding back on new orders, or purchasing cheaper models than in years past, he said. Ariens’ spare parts business has continued to grow since the recession.

In 2008, Scotts Miracle-Gro Co. saw business for its lawn service dip along with the economy. “As the economy has improved, our lawn service business has improved along with it,” said Jim King, vice president of corporate affairs at Scotts. Homeowners can apply the company’s lawn products themselves or hire Scott’s service, which costs three to four times more and has made modest gains in the last two years with more repeat customers.

Mr. King said Scotts has also remarketed its do-it-yourself fertilizer to reflect homeowners who no longer want “extra-perfect” lawns, but turf that’s “good enough.” Sales of the fertilizer have begun to rebound after years of decline.

“It doesn’t have to be the emerald-green envy of the neighborhood,” he said.

http://www.blogs.wsj.com/economics

Counterfeit Chainsaw in New Zealand Prompts Fears Over Chinese Fakes

New Zealand – August 5 -- A potentially dangerous knock-off chainsaw sold on a local auction website has triggered calls to only buy from reputable distributers.

John Hudson, a correspondent for TV ONE's Sunday programme, found a counterfeit Stihl chainsaw being sold as the legitimate product on Trade Me.

Hudson traced the fake Stihl chainsaw all the way back to a sweatshop in regional China where he quizzed staff about the potentially dangerous fakes.

Winifried Mickely of Stihl in China says "you could consider this organised crime".

"There are many provincial, or lower level authorities which do not really take high efforts to stop this business," Mickely said.

Further investigation by TV ONE's Sunday programme has found that extraordinary numbers of counterfeit products are regularly being seized at New Zealand borders.

New Zealand Customs spokesman Shane Panetiere said nearly all the counterfeit products they seize have originated in China.

While a large number come from Hong Kong, "probably 80% to 85% of counterfeits are sourced from China", Panetiere said.

Fake iPhones, MAC makeup and Gucci sunglasses are among the counterfeit items which have been collected by Customs.

China has anti-counterfeit laws but the fines are just three times the value of the goods seized, with the rewards for such counterfeits usually exceeding such punishment.

http://www.tvnz.co.nz

Generac Reports Strong Second Quarter 2012 Results

WAUKESHA, WI -- Aug. 2, 2012-- Generac Holdings Inc., a leading designer and manufacturer of generators and other engine powered products, today reported financial results for its second quarter ended June 30, 2012.

Highlights

• Net sales increased year-over-year by 48.2% to $239.1 million as compared to $161.4 million in the second quarter of 2011.
• Residential product sales increased 33.8% compared to the second quarter of 2011.
• Commercial & Industrial (C&I) product sales increased 76.4% compared to the prior year second quarter.
• Net sales over the trailing four quarters were $1.040 billion; on a pro-forma basis, when including the results for Magnum.
• Products for the entire period, net sales were $1.082 billion.
• Net income was $9.3 million or $0.14 per share for the second quarter of 2012 as compared to $15.3 million or $0.23 per share for the same period of 2011. The current year results include a charge for refinancing costs and a normalized effective income tax rate. Adjusted net income, as defined in the accompanying reconciliation schedules, increased to $39.9 million from $27.7 million in the second quarter of 2011. Adjusted diluted net income per common share was $0.58 as compared to $0.41 per share in the second quarter of 2011.
• Adjusted EBITDA increased to $54.6 million as compared to $37.6 million in the second quarter last year.
• Cash flow from operations in the second quarter of 2012 was $21.1 million as compared to $15.3 million in the prior year quarter. Free cash flow was $17.8 million as compared to $13.5 million in the second quarter of 2011.
• For the trailing four quarters, net income was $343.9 million; adjusted EBITDA, pro-forma for Magnum Products was $258.3 million; cash flow from operations was $201.4 million; and free cash flow was $187.3 million, which represents 90% of the adjusted net income reported during that time period.
• The Company is raising its sales growth guidance for full-year 2012 to the low-20% range over the prior year, which represents an increase from the high-teens growth rate previously expected. As a result, Adjusted EBITDA for the full-year 2012 is now expected to increase in the high-teens range over the prior year, which is an increase from the mid-teens growth rate previously expected.

“Our second quarter results continue to demonstrate the progress we are making in executing our Powering Ahead strategic plan,” said Aaron Jagdfeld, President and Chief Executive Officer. “Growth in shipments of home standby and portable generators were again strong during the second quarter. In particular, the market for our home standby generators continues to develop as more home owners discover the importance of having backup power. In our commercial and industrial products, Magnum continues to perform well as demand for mobile equipment is benefiting from a shift towards renting versus buying. In addition, while still a smaller portion of the overall market, our leadership position in natural gas backup generators within North America has allowed us to benefit from the increased demand for these products.”

Second Quarter 2012 Details

Residential product sales for the second quarter of 2012 increased 33.8% to $123.4 million from $92.2 million for the comparable period in 2011. The growth was primarily driven by strong double-digit increases in shipments for both home standby and portable generators. The Company’s efforts to increase awareness and availability of home standby generators together with execution in meeting the increased demand for these products have helped to drive baseline growth. In addition, expanded placement for portable generator products continues to lead to year-over-year market share gains. Increased revenue from the power washer product line, which began shipping in the second quarter of 2011, also contributed modestly to the year-over-year sales growth in residential products.

Product sales for the second quarter of 2012 increased 76.4% to $101.1 million from $57.3 million for the comparable period in 2011. The increase in net sales was primarily driven by the Magnum Products acquisition, and to a lesser extent, increased shipments of natural gas backup generators, partially offset by a decline in shipments to national account customers.

Gross profit margin for the second quarter of 2012 was 36.6% compared to 37.4% in the second quarter of 2011. Gross margin declined over the prior year due to the mix impact from the addition of Magnum Products sales, which was partially offset by a higher mix of home standby generators and the positive impact from price increases, improved overhead absorption and moderation in commodity costs relative to the prior year.

Operating expenses for the second quarter of 2012 increased by $11.7 million or 30.4% as compared to the second quarter of 2011. These additional expenses were driven primarily by operating expenses associated with Magnum, increased sales, engineering and administrative infrastructure to support the strategic growth initiatives and higher baseline sales levels of the Company, increased incentive compensation expenses as a result of the Company’s financial performance during the quarter, and increased variable operating expenses resulting from the double-digit increase in organic sales.

As previously announced, on May 30, 2012, the Company completed a refinancing of its senior secured credit facilities, pursuant to which it has incurred $900 million of senior secured term loans to replace its prior $575 million term loan facilities. Following the refinancing, the Company used the available proceeds from the new term loans and cash on hand to fund a special cash dividend to its stockholders of $6.00 per share and to pay related financing fees and expenses. The special dividend, which was paid on June 29, 2012, constituted a declared amount of approximately $408 million in the aggregate of which $404 million was paid in the quarter. In conjunction with this refinancing, an approximate $11.0 million non-recurring charge was recorded during the second quarter of 2012 relating to refinancing costs and other related expenses. As a result of the higher debt levels from the refinancing, interest expense in the second quarter of 2012 increased to $9.9 million compared to $5.9 million in the same period last year.

Net income in the current year quarter includes the impact of a normalized effective income tax rate of 40.5% as compared to a tax rate of 0.6% in the prior-year second quarter. Until the fourth quarter of 2011, a full valuation allowance was recorded on the Company’s net deferred tax assets, resulting in substantially no tax provision. A full valuation allowance is no longer required on the Company’s net deferred tax assets, and therefore, a normalized income tax provision was recorded in the second quarter of 2012. However, the Company’s cash tax obligations are expected to remain nominal given its current tax attributes.
Free cash flow was $17.8 million in the second quarter of 2012 as compared to $13.5 million in the same period last year. Strong operating earnings were partially offset by increased working capital investment driven by seasonal finished goods inventory replenishment and additional raw material safety stock for rapid demand response.

Outlook

The Company is revising upward its sales guidance for full-year 2012 as a result of solid execution in the second quarter of 2012 and an increased outlook for residential sales for the third quarter of 2012. Full-year 2012 total net sales are now expected to increase in the low-20% range over the prior year, which represents an increase from the high-teens growth rate previously expected. The higher revenue outlook is primarily attributable to recent major power outage events that occurred in the Midwest and Mid-Atlantic regions in late June and early July. The Company expects these events should result in improved shipments of portable and home standby generators, relative to prior guidance, due to the increased awareness and demand for back-up power. This revised guidance continues to assume no material changes in the macroeconomic environment, as well as no additional major power outage events during the remainder of 2012.

As a result of this higher sales outlook, Adjusted EBITDA for the full-year 2012 is now expected to increase in the high-teens range over the prior year, which is an increase from the mid-teens growth rate previously expected.

As previously announced, the Company’s guidance for interest expense for the full-year 2012 is expected to be in the range of $49.0 to $50.0 million, which includes $45.0 to $45.5 million of debt service costs, at current LIBOR rates, plus approximately $4.5 million for deferred financing cost and original issue discount amortization for the new credit facility. Interest expense during the third quarter of 2012, the first full quarter under the new capital structure, is expected to be approximately $17.1 to $17.3 million, which includes approximately $1.5 million of deferred financing cost and original issue discount amortization.

Mr. Jagdfeld continued, “Major outage events like the ones recently experienced in the Midwest and Mid-Atlantic regions demonstrate the fact that prolonged under investment in the aging electrical grid in the U.S. is leading to more frequent and longer power disruptions for homeowners and businesses. Given the relatively low awareness and penetration of home and light-commercial standby generators, we believe there is significant growth opportunity as the leader in this emerging product category. Our Powering Ahead strategic plan focuses on baseline sales growth within new and existing products and markets, and complements the powerful secular trends that continue to drive our business. Add to this the potential for future recovery in both residential investment and non-residential construction, and we believe Generac is well positioned over the long term to continue driving organic revenue growth, superior margins and strong free cash flow.”

Manufacturing Slows Amid Political Uncertainties

MILWAUKEE – July 31 -- Manufacturing in southeastern Wisconsin and northern Illinois shrank in July for the first time in three years, with orders from the United States, Europe and China dropping as business seems almost paralyzed until the fall election is over and economic policies are addressed.

That's according to data from a monthly survey of manufacturers released Tuesday by Marquette University and the local chapter of the Institute for Supply Management.

The survey's index measuring industrial health was 46.7, much lower than June's 60.2. A reading above 50 indicates growth, while a reading below 50 indicates declining conditions.

It was the first time the area's seasonally adjusted in dex fell below 50 since July 2009.

"We are distracted by a very uncertain political environment," said Doug Fisher, director of the Center for Supply Chain Management in Marquette University's College of Business Administration. "Whether it's health care or tax law, people just don't know what to expect."

Wisconsin factories are vulnerable to economic shocks from the rest of the nation and overseas. Higher energy prices also produce an "automatic drag" on the economy, said Nick Hayes, a partner with FiveTwelve Group Ltd., a business research and consulting firm in Milwaukee.

U.S. manufacturing shrank in June for the first time in nearly three years, adding to signs that economic growth is weakening amid the recession in Europe and a slowdown in Asia.

"My clients are saying June was still acceptable, but things started slowing in July," Hayes said.

The recovery from the recession has come in fits and starts, and one month's survey data should not be taken out of context. But two more months of low numbers would be worrisome, according to Fisher.
This should be a busy time of the year at The Wagner Cos., a Milwaukee manufacturer of hand railings, light fixtures and other items used in commercial buildings and new-home construction.

But the company has not fully recovered from the recession, and it could be another five years before some of the business returns to normal, said CEO Robert Wagner.

"We were very concerned because early in (July) there was a considerable slowdown in orders. But toward the end of the month, there was a little uptick," Wagner said.

Twin Disc Inc., a Racine-based maker of power transmission equipment used in the petroleum and marine industries, on Tuesday said its recent quarterly income plunged 87% to $1 million, or 9 cents a share, from $7.59 million, or 66 cents a share, a year earlier.

The company blamed some of the poor results on softening demand for its oil-field products and weakness in its Italian mega-yacht business.

"The slowdown in the North American oil and gas markets will impact sales and profitability, and we remain cautiously optimistic about the outlook for fiscal 2013," Chairman and CEO Michael Batten said in a news release.

In the Marquette University data, a measurement of new orders at area manufacturers was 41 in July, down from 55.8 in June, while the employment index was 51.3, down from 73.8 in June.

Fisher said he was disappointed with the results but not surprised, as similar national figures fell in June.
"We are all in the same ocean together," he said. "Companies want to know more if they're going to make investments."

Not everyone has felt the downturn, including Waukesha Foundry, which makes custom castings for highly specialized items, sometimes one at a time.

Locally owned by Facilitator Capital Fund, the foundry generated $30 million in sales in 2011, up about 15% from the year before. Sales goals are $35 million in 2012 and $50 million in 2014.

The foundry has made metal-cast parts for Harley-Davidson Inc., Mercury Marine, AB Volvo, Rockwell Automation Inc., Oshkosh Corp., Navistar, Caterpillar Inc., Deere & Co. and many others.

"Our order backlog is at its highest level ever. If anything, we are having a little trouble getting some orders out the door," said Waukesha Foundry President and CEO Ken Kurek.

Still, economic uncertainty - and in some cases the drought - have taken a toll on manufacturers of many items including outdoor power products made in Wisconsin.

"We have seen dealers in our industry close their doors as a result of the dry weather," said Dan Ariens, president of Ariens Co., a Brillion-based maker of outdoor power equipment.

Ariens Co. felt the downturn in May and June after a good start to the year earlier in the spring.

"It was consumer caution and the weather. I think we are in a time when everyone wants to pause and see what's going to happen," Dan Ariens said.

Rick Barrett     www.jsonline.com