March 17 -- A retailer struggling to fend off increasing competition is borrowing a page from the marketing playbook of products like soft drinks and soup by naming its rivals in aggressive advertising.
Sears, in a campaign scheduled to begin on Sunday, will urge consumers to shop for lawn and garden products at Sears rather than Home Depot or Lowe’s. A description of the campaign on a section of the Sears Web site (sears.com/turfwars) underlines its tough-talking nature: “Sears Turf Wars, fighting the Home Depot and Lowe’s for the right to be on your lawn.”
The campaign, being created by the Chicago office of Y&R, has an extensive presence in new media, including Web video clips, social media and a mobile application that enables comparisons of products sold by those three retailers.
“ ‘Turf Wars’ isn’t just an ad campaign,” said Martin Lee, vice president and chief marketing officer for lawn and garden products at Sears Holdings in Hoffman Estates, Ill. “It’s a marketing platform, an attitude, a statement of what we will do for our lawn and garden customers.”
Sears, part of the Sears Holdings Corporation, is joining a lengthy list of marketers challenging competitors rather than using coy terms like “Brand X” or “another leading brand.” Such direct campaigns are known in the industry as comparative advertising, but they amount to the Madison Avenue equivalent of the negative advertising that is prevalent in politics.
Comparative ads typically become more commonplace when the economy is weak, on the theory that when times are tough it may pay to hit your rival harder.
“We wanted to create disruptive advertising,” Mr. Lee said. “The brief to the agency was ‘shock and shatter.’ ”
Among brands that have been naming names in pointed ads are Pepsi Max and Sierra Mist Natural sodas, citing, respectively, Coke Zero and Sprite; Campbell’s Select Harvest soups, tackling Progresso, which soon counterattacked; Dunkin’ Donuts, taking on the coffee sold by Starbucks; and the Chevrolet Cruze, proclaiming its superiority to the Honda Civic and the Toyota Corolla.
Comparative advertising is not without its risks. One is that the intended audience may be turned off by the tactic, flagging the sponsor for unnecessary roughness. Another risk is that the novelty of hearing or seeing names of other products in ads may prevent consumers from recalling who the sponsor actually was.
And comparative advertising requires “a high degree of believability about the message,” said Robert Passikoff, president of Brand Keys in New York, a brand and customer-loyalty consulting company.
For instance, “if I tell you Kia is a match for Mercedes,” he added, “you’d be laughing your head off.”
In the Brand Keys rankings of sellers of merchandise in the categories of garden care and home repair, Sears is fifth among five retailers, Mr. Passikoff said, trailing, in order, Ace, True Value, Home Depot and Lowe’s.
However, the Craftsman brand, which is a focus of the new Sears campaign, does resonate with consumers on attributes like quality and value, he added.
The initial television commercial in the campaign features an assertive, gravelly voiced actor named John Lacy, who has appeared in films like “Live Free or Die Hard” and “Zodiac.” He comes across more like a pitchman in a truck ad than a retail spot.
Indeed, Mr. Lacy is first glimpsed inside the cab of a truck, part of a caravan delivering Sears lawn and garden products. The trucks drive past a Lowe’s store before setting up the merchandise in a parking lot near a Home Depot.
“There’s a lot of home improvement centers out there,” he says, “but does paying more for less mower really improve anything? You deserve better.”
Sears will “put our money where our mouth is,” Mr. Lacy says, by offering a lowest-price guarantee,” adding, “You won’t find a better deal there or there,” pointing to the Lowe’s and Home Depot stores.
“It’s a turf war, ’cause your lawn is worth fighting for,” he concludes.
The campaign is “purposely aggressive and provocative,” said Bob Winter, chief creative officer at Y&R Chicago, part of the Y&R unit of Young & Rubicam Brands, owned by WPP.
“It’s definitely got a little bit of bravado,” Mr. Winter said, because Sears executives “feel it’s time to show bravado.”
But it does not go too far, he added: “It’s a war. But it’s a war waged with riding mowers that max out at seven miles an hour.”
The tone should appeal to potential customers, Mr. Winter said, describing them as “middle-aged suburban dudes” for whom “their lawn is their ultimate form of self-expression.”
The campaign is arriving as Y&R Chicago takes part in a review for the Sears creative account, with spending last year, according to Kantar Media, of $459.4 million, of which $12.3 million was devoted to lawn and garden products.
Asked what it was like to produce the campaign at such a precarious time, Mr. Winter replied: “We’re focused on the future, and doing the right thing for our client, no matter what. The review aside, our challenge is to provide them with innovative creative solutions to their problems, and we’re going to continue to do that.”
Mr. Lee declined to discuss the review but said, “Y&R really did a great job for us on this.”
The Turf Wars do not seem to be prompting Sears’s rivals to wave white flags. For example, Home Depot and a company called Scanbuy are introducing a print campaign using mobile bar codes, or QR codes, to provide information about Martha Stewart Living merchandise.
Monday, March 21, 2011
Worldlawn Power Purchases Encore
March 18 -- Encore Manufacturing in Beatrice reached a deal to sell all its assets to Worldlawn Power Equipment Inc., a Chinese firm which currently operates out of Industry, Calif.
The company will be moving its operation from California to Beatrice, a move that could eventually bring 40 jobs to Beatrice.
Encore founder Dick Tegtmeier said he’s been negotiating with Worldlawn since December of 2008.
“Because of the banking institutions, the general economy and some other things that are out of control caused us to be short-handed on money, so we had to sell it,” Tegtmeier said.
Tegtmeier said Worldlawn wanted to enhance its commercial line of lawn mowers and was interested in buying Encore. Worldlawn produces and markets various sizes of walk-behind and zero-turn radius mowers along with a line of two stage snow throwers.
Tegtmeier said he had to dismiss all employees at Encore, including himself, and said Worldlawn will begin to hire back as needed. Tegtmeier said the company plans to keep the Encore name but incorporate Worldlawn’s brand into it.
Tegtmeier co-founded Exmark Manufacturing with three others in 1982. In 1988, he opened his own mower company, Encore Manufacturing.
To start Encore, Tegtmeier made a triangle from Beatrice to Milwaukee and then to New York to try and sell stock in the company.
Tegtmeier said selling Encore was a difficult decision, but he had no choice. Because of his loyal employees, Tegtmeier said he wouldn’t sell Encore to anyone unless they kept it in Beatrice.
“It’s a thing that had to be done because of the finances,” Tegtmeier said. “Otherwise it’s kind of a sad state. I had some very, very loyal employees. I certainly hated to see them lose their jobs, thus my criteria was it had to stay here. I had about 42 people interested in buying and then once I announced it had to stay in Beatrice, I lost about 45 percent overnight.”
According to documents in the Register of Deeds office, the transaction for Encore Manufacturing was approximately $1.3 million.
Beatrice Chamber of Commerce President Lori Warner applauded Tegtmeier for his desire to keep the company in Beatrice.
“He didn’t have to do that,” Warner said. “He could have sold it to somebody else and let them take it out of Beatrice, but he was adamant on keeping it in Beatrice. And he wanted to, because he knew it was important to Beatrice.”
Encore has been synonymous with the Tegtmeier name since its founding.
“Being in the industry since ‘66, it’s hard to give up,” Tegtmeier said. “And I didn’t want to yet. But there comes a point of time when you’ve completed your circle and I’ve done it.”
Tegtmeier said Encore once employed 42 people at its peak. Currently, the company employs two full-time workers and five part-time employees with no manufacturing taking place.
Encore service manager Billy Harms said Worldlawn officials have said they would like to eventually bring 40 jobs back to Encore.
Currently, there is no timeline on when the company will begin operation in Beatrice.
“It’s kind of bittersweet,” Harms said. “It’s nice to see the company come back but it’s hard to see an era end in working with Dick. We all hope it comes full circle and people get their jobs back. We could have all the former people back, but we know we have some contingency that we’re going to have to work along with.”
Warner said Encore has been a wonderful business that’s been a stable in the community for over 20 years.
She said it’s a big benefit for the community that the Tegtmeiers were able to make this sale happen.
“I’ve already heard that several people have left Los Angeles and were flying to Beatrice to look at renting a home,” Warner said. “So we will get an influx of new people to our community because of this and hopefully several former employees will get their jobs back as well.”
Warner said Beatrice has endured a tough year with the loss of Husqvarna Turf Care and it’s nice to finally have some good news for the community.
“It just goes to show that we shouldn’t give up hope,” Warner said. “Positive things like this can happen, but it just takes a while. I think that this company being sold and jobs coming back is a wonderful story and it should provide hope that good things will happen in the future.”
The company will be moving its operation from California to Beatrice, a move that could eventually bring 40 jobs to Beatrice.
Encore founder Dick Tegtmeier said he’s been negotiating with Worldlawn since December of 2008.
“Because of the banking institutions, the general economy and some other things that are out of control caused us to be short-handed on money, so we had to sell it,” Tegtmeier said.
Tegtmeier said Worldlawn wanted to enhance its commercial line of lawn mowers and was interested in buying Encore. Worldlawn produces and markets various sizes of walk-behind and zero-turn radius mowers along with a line of two stage snow throwers.
Tegtmeier said he had to dismiss all employees at Encore, including himself, and said Worldlawn will begin to hire back as needed. Tegtmeier said the company plans to keep the Encore name but incorporate Worldlawn’s brand into it.
Tegtmeier co-founded Exmark Manufacturing with three others in 1982. In 1988, he opened his own mower company, Encore Manufacturing.
To start Encore, Tegtmeier made a triangle from Beatrice to Milwaukee and then to New York to try and sell stock in the company.
Tegtmeier said selling Encore was a difficult decision, but he had no choice. Because of his loyal employees, Tegtmeier said he wouldn’t sell Encore to anyone unless they kept it in Beatrice.
“It’s a thing that had to be done because of the finances,” Tegtmeier said. “Otherwise it’s kind of a sad state. I had some very, very loyal employees. I certainly hated to see them lose their jobs, thus my criteria was it had to stay here. I had about 42 people interested in buying and then once I announced it had to stay in Beatrice, I lost about 45 percent overnight.”
According to documents in the Register of Deeds office, the transaction for Encore Manufacturing was approximately $1.3 million.
Beatrice Chamber of Commerce President Lori Warner applauded Tegtmeier for his desire to keep the company in Beatrice.
“He didn’t have to do that,” Warner said. “He could have sold it to somebody else and let them take it out of Beatrice, but he was adamant on keeping it in Beatrice. And he wanted to, because he knew it was important to Beatrice.”
Encore has been synonymous with the Tegtmeier name since its founding.
“Being in the industry since ‘66, it’s hard to give up,” Tegtmeier said. “And I didn’t want to yet. But there comes a point of time when you’ve completed your circle and I’ve done it.”
Tegtmeier said Encore once employed 42 people at its peak. Currently, the company employs two full-time workers and five part-time employees with no manufacturing taking place.
Encore service manager Billy Harms said Worldlawn officials have said they would like to eventually bring 40 jobs back to Encore.
Currently, there is no timeline on when the company will begin operation in Beatrice.
“It’s kind of bittersweet,” Harms said. “It’s nice to see the company come back but it’s hard to see an era end in working with Dick. We all hope it comes full circle and people get their jobs back. We could have all the former people back, but we know we have some contingency that we’re going to have to work along with.”
Warner said Encore has been a wonderful business that’s been a stable in the community for over 20 years.
She said it’s a big benefit for the community that the Tegtmeiers were able to make this sale happen.
“I’ve already heard that several people have left Los Angeles and were flying to Beatrice to look at renting a home,” Warner said. “So we will get an influx of new people to our community because of this and hopefully several former employees will get their jobs back as well.”
Warner said Beatrice has endured a tough year with the loss of Husqvarna Turf Care and it’s nice to finally have some good news for the community.
“It just goes to show that we shouldn’t give up hope,” Warner said. “Positive things like this can happen, but it just takes a while. I think that this company being sold and jobs coming back is a wonderful story and it should provide hope that good things will happen in the future.”
Blount Elects President and CEO
PORTLAND, Ore., March 15, 2011-- Blount International, Inc. announced today that David A. Willmott has been elected to the newly created position of President and Chief Operating Officer. Mr. Willmott was previously Senior Vice President - Corporate Development and Strategy, an executive officer position. Mr. Willmott will work with Josh Collins, Chairman and CEO, in the general oversight and management of the Company, with a particular emphasis on working with senior management to drive growth in the Company's farm, ranch & agriculture and construction end markets. In addition, Mr. Willmott will continue to be responsible for Blount's corporate development and strategy functions.
Commenting on the organizational change, Mr. Collins stated, "Over the past year, we have formulated a new growth strategy for the Company and have implemented numerous supporting initiatives aimed at sustainable profit growth through improving customer service, expanding our manufacturing footprint, driving increased new product introductions, and creating a culture of continuous improvement. With the growth of our business over the last year and the growth opportunities ahead of us, both internal and through acquisition, the scope of our global business has changed, necessitating this new position."
Mr. Collins further commented, "Since joining Blount in late 2009, David has played a major role in setting our new strategy, repositioning our business portfolio with the sale of Gear Products and the acquisitions of SpeeCo and KOX, and overseeing the implementation of several major initiatives including our supply chain reorganization, continuous improvement program, and SKU reduction. His impact on the organization to date has been far beyond his role as head of Corporate Development and Strategy."
Commenting on his new role, Mr. Willmott stated, "I look forward to continuing the work we have begun over the last year and a half. We have tremendous opportunities ahead of us for profitable growth and long-term value creation for our shareholders."
Blount is a global manufacturer and marketer of replacement parts, equipment, and accessories for the forestry, lawn and garden; farm, ranch and agriculture; and construction industries, and is the market leader in manufacturing saw chain and guide bars for chainsaws. Blount sells its products in more than 100 countries around the world.
Commenting on the organizational change, Mr. Collins stated, "Over the past year, we have formulated a new growth strategy for the Company and have implemented numerous supporting initiatives aimed at sustainable profit growth through improving customer service, expanding our manufacturing footprint, driving increased new product introductions, and creating a culture of continuous improvement. With the growth of our business over the last year and the growth opportunities ahead of us, both internal and through acquisition, the scope of our global business has changed, necessitating this new position."
Mr. Collins further commented, "Since joining Blount in late 2009, David has played a major role in setting our new strategy, repositioning our business portfolio with the sale of Gear Products and the acquisitions of SpeeCo and KOX, and overseeing the implementation of several major initiatives including our supply chain reorganization, continuous improvement program, and SKU reduction. His impact on the organization to date has been far beyond his role as head of Corporate Development and Strategy."
Commenting on his new role, Mr. Willmott stated, "I look forward to continuing the work we have begun over the last year and a half. We have tremendous opportunities ahead of us for profitable growth and long-term value creation for our shareholders."
Blount is a global manufacturer and marketer of replacement parts, equipment, and accessories for the forestry, lawn and garden; farm, ranch and agriculture; and construction industries, and is the market leader in manufacturing saw chain and guide bars for chainsaws. Blount sells its products in more than 100 countries around the world.
Thursday, March 10, 2011
Blount Announces 2010 4th Quarter and Full Year Results, Plus 2011 Outlook
PORTLAND, Ore., March 9, 2011 -- Blount International, Inc. today announced results for the fourth quarter and full year ended December 31, 2010, and provided a financial outlook for 2011.
Results for the Quarter and Full Year Ended December 31, 2010
The Company's sales in the fourth quarter of 2010 were $171.0 million, a 23.1% increase from the fourth quarter of 2009, and an 8.4% increase when excluding sales from acquisitions. Operating income for the fourth quarter of 2010 was $21.5 million compared to $15.6 million in the fourth quarter of 2009. Fourth quarter 2010 income from continuing operations was $12.4 million ($0.25 per diluted share) compared to $6.3 million ($0.13 per diluted share) in the fourth quarter of 2009.
Full year 2010 sales for the Company were $611.5 million, a 25.5% increase from 2009. Full year sales rose 18.4% excluding SpeeCo, which was acquired on August 10, 2010. Operating income for 2010 was $85.6 million compared to $54.5 million in 2009, and income from continuing operations was $41.4 million ($0.85 per diluted share) compared to $21.9 million ($0.45 per diluted share) in 2009.
Josh Collins, Chairman and Chief Executive Officer, commented on the 2010 results: "We are pleased with our financial results for the fourth quarter and full year 2010. Our base business has recovered from the recession levels of 2009, and we have acted aggressively in executing our strategic initiatives over the course of 2010. As we enter 2011, our base business demand is solid and we see additional opportunities to grow sales and profit through acquisitions, cost improvement programs, and new products. Additionally, we added to our distribution capability in the first quarter of 2011 with the acquisition of KOX, a Germany based direct-to-customer distributor of forestry-related replacement parts and accessories."
Sales
Sales were 8.4% higher in the fourth quarter of 2010 compared to the fourth quarter of 2009 excluding SpeeCo (all sales growth statistics are quoted excluding sales related to SpeeCo for comparability). International sales grew 11.9% and domestic sales were up slightly on a year-over-year basis. Sales to original equipment manufacturers increased 4.9%, and replacement sales increased 9.4%. Foreign exchange rate changes had an unfavorable year-over-year impact on sales, primarily driven by a stronger U.S. Dollar compared to most European currencies. The change in sales for the comparable periods is illustrated below, with SpeeCo sales of $20.4 million presented entirely as unit volume increase:
% Change in Sales from Fourth Quarter 2009: | ||
Unit Volume | +23.7 % | |
Selling Price/Mix | 0.0 % | |
Foreign Exchange | (0.6)% | |
Total | 23.1 % | |
Sales order backlog increased to $133.7 million at December 31, 2010 compared to $78.1 million as of December 31, 2009. Excluding orders related to SpeeCo, backlog increased $49.0 million, or 63% from the year-ago period.
Gross Profit
Fourth quarter 2010 gross profit was $53.4 million compared to $51.5 million in the fourth quarter of 2009. The increase in gross profit was driven primarily by the increase in sales volume, including the addition of SpeeCo. The favorable impact of higher sales volumes was partially offset by a significant year-over-year unfavorable movement in foreign exchange rates, increased steel costs, and non-cash expenses related to SpeeCo acquisition accounting. A reconciliation of the fourth quarter 2010 gross profit and gross profit margin compared to the fourth quarter of 2009 is presented below:
Change in Gross Profit and Gross Margin | ||||||
(dollars in millions) amounts may not sum due to rounding | Gross Profit | Gross Margin | ||||
Fourth quarter 2009 | $51.5 | 37.1% | ||||
Increase/ (Decrease) | ||||||
Unit Volume, including SpeeCo | 11.2 | -0.4% | ||||
Selling Price /Mix | 0.0 | 0.0% | ||||
Costs/Mix | (2.3) | -1.3% | ||||
Steel costs | (1.2) | -0.7% | ||||
Purchase accounting charges related to SpeeCo | (1.8) | -1.1% | ||||
Foreign Exchange | (4.0) | -2.4% | ||||
Total Change | 1.9 | -5.9% | ||||
Fourth quarter 2010 | $53.4 | 31.2% | ||||
The foreign exchange impact reflects the movement of the Canadian Dollar to near parity with the U.S. Dollar and the associated impact on manufacturing conversion costs. Steel prices rose throughout the second half of 2010 and resulted in a $1.2 million increase in cost of sales in the fourth quarter of 2010 compared to the fourth quarter of 2009. Additionally, conversion and logistics costs increased $2.3 million in the fourth quarter of 2010 compared to the fourth quarter of 2009, primarily as a result of incremental freight costs driven by global transportation rates impacting both inbound and outbound shipments.
Operating Income
Operating income increased to $21.5 million in the fourth quarter of 2010 from $15.6 million in the fourth quarter of 2009. The drivers of this change in operating income compared to the fourth quarter of 2009 are presented below:
Change in Operating Income | ||||
(dollars in millions) | Compared to Prior Year | |||
Fourth quarter 2009 Operating Income | $15.6 | |||
Change in Gross Profit | 1.9 | |||
Change in SG and A Expense: | ||||
SpeeCo | (1.9) | |||
2009 non-recurring expenses | 8.6 | |||
Foreign exchange | 0.3 | |||
All other | (3.0) | |||
Total Change | 5.9 | |||
Fourth quarter 2010 Operating Income | $21.5 | |||
| | ||||
SG and A declined by $4.0 million compared to the fourth quarter of 2009. The decline was a result of fourth quarter 2009 charges related to settlement of litigation and other one-time expenses associated with the transition of the Company's Chief Executive Officer position in 2009, which were not repeated in the fourth quarter of 2010, and favorable foreign exchange rate changes. Partially offsetting these reductions were increased advertising expenses of $1.3 million, primarily in support of the recently introduced PowerSharp® product, and approximately $1.7 million of incremental expenses supporting the Company's business acquisition and other strategic programs.
Income from Continuing Operations
Fourth quarter 2010 income from continuing operations improved primarily due to improved operating income, a reduction in net interest expense, and a reduction in income tax rates compared to the fourth quarter of 2009. Overall, the change to income from continuing operations for the fourth quarter of 2010 compared to the fourth quarter of 2009 is illustrated in the table below:
Change in Income from Continuing Operations | |||||||
(dollars in millions, except per share data) | Pre-tax Income | Income Tax Effect | Income from Continuing Operations | Diluted Earnings per Share | |||
Fourth quarter 2009 Results | $9.2 | $2.9 | $6.3 | $0.13 | |||
Change due to: | |||||||
Increased operating income | 5.9 | 1.9 | 4.0 | 0.08 | |||
Decreased net interest expense | 1.2 | 0.4 | 0.8 | 0.02 | |||
Change in income tax rate | - | (1.2) | 1.2 | 0.03 | |||
Fourth quarter 2010 Results | $16.4 | $4.0 | $12.4 | $0.25 | |||
Cash Flow and Debt
As of December 31, 2010, the Company had net debt of $269.3 million, an increase of $38.5 million from December 31, 2009, and a reduction of $14.4 million compared to September 30, 2010. Net debt increased over the course of 2010 primarily as a result of the $91 million acquisition of SpeeCo in August, partially offset by positive free cash flow generation and net proceeds from the sale of Gear Products, Inc. ("Gear"). In 2010, the Company generated $36 million in free cash flow excluding $18.2 million of net proceeds from the sale of Gear. The Company defines free cash flow as cash flows from operating activities less net capital spending.
Discontinued Operations
Discontinued operations reflect the operating results of the Company's former Gear subsidiary. The Company received approximately $25 million in cash on the September 30, 2010 closing date of the sale of Gear, resulting in net proceeds of $18.2 million after the payment of related taxes on the sale and other transaction costs.
2011 Financial Outlook
The Company's fiscal year 2011 outlook is for sales to range between $715 million and $735 million and operating income to range between $100 million and $108 million. Our expectation for 2011 sales levels assumes a full year of SpeeCo ownership and growth for the overall business of between 6% and 9%, plus the benefit of the recently acquired KOX business, which adds net sales of approximately $20 million. The expectation for 2011 operating income assumes that unfavorable foreign currency exchange rates and rising steel prices will increase costs between $5 million and $7 million and also includes estimated incremental amortization on acquired KOX intangible assets of $2 million to $3 million. Free cash flow is expected to range between $40 million and $45 million in 2011. Net interest expense is expected to be $20 million in 2011, and the effective income tax rate for continuing operations is expected to be between 36% and 40% in 2011.
A comparison of 2010 full-year actual results, 2010 proforma results (incorporating SpeeCo's results for the full year), and the 2011 outlook mid-point estimates for Sales, Operating Income, and Adjusted EBITDA (defined below)is provided in the table below.
(dollars in millions) | 2010 Actual | 2010 Pro Forma | 2011 Mid-Point Estimate | ||
Sales | $611.5 | $656.6 | $725.0 | ||
Operating Income | 85.6 | 89.3 | 104.0 | ||
Adjusted EBITDA | 118.2 | 125.5 | 140.0 | ||
The above amounts include $4.9 million, $8.1 million, and approximately $8.8 million of purchase accounting amortization and acquisition related charges for 2010, pro forma 2010 full year, and 2011, respectively. Adjusted Earnings before Interest, Taxes, Depreciation, Amortization, and certain adjustments ("Adjusted EBITDA") is a non-GAAP measure and is reconciled to Operating Income in the attached financial data table.
Blount is a global manufacturer and marketer of replacement parts, equipment, and accessories for the forestry, lawn and garden; farm, ranch and agriculture; and construction industries, and is the market leader in manufacturing saw chain and guide bars for chainsaws. Blount sells its products in more than 100 countries around the world.
Monday, February 28, 2011
Husqvarna Fourth Quarter and Annual Report for 2010 -- Excerpts
Stockholm February 23, 2011
Magnus Yngen, President and CEO:
”Demand recovered during the year and we strengthened our market positions for outdoor products in Europe and for Construction. After several years of decline, demand recovered also in the US. Despite the recovery, sales and profitability in the region were weak as we had significantly lower listings. For the Group, full-year operating income and margin were significantly above last year’s levels. Innovative new products and a strong focus on our dealer network were important contributors to the positive development.
Due to the seasonality of our operations, the fourth quarter accounts for a small share of annual sales and
operating income and is mainly devoted to start-up of production for the next season. Although market
conditions are improving, retailers were still cautious to build inventory in the fourth quarter.
In the fourth quarter, Europe & Asia/Pacific and Construction continued its positive development. For the
Group, adjusted net sales increased five percent and operating income also improved.
We expect higher shipments to the trade in the first quarter of 2011, compared with the first quarter of
2010, due to improved listings and a continued focus on dealer sales. We also expect a continued recovery of end-user demand for forest, park and garden products as well as for construction products. Due to the strong SEK, we expect negative currency effects in 2011.”
Fourth Quarter
• Net sales increased to SEK 4,794m (4,732) and operating income improved to SEK -63m (-515).
• Operating margin improved to -1.3% (-10.9).
• Growth for Europe & Asia/Pacific and Construction offset lower sales for Americas.
• Operating income and operating margin improved for all business areas.
Full-Year
- Strengthened market shares for park and garden products in Europe & Asia/Pacific and for construction products in North America.
- Strong growth for dealer channel sales.
- Net sales and operating income for Europe & Asia/Pacific and Construction increased, but decreased for Americas.
- Operating income increased by 57% to SEK 2,445m (1,560).
- Income for the period increased significantly to SEK 1,749m (903), or SEK 3.03 (1.64) per share.
- The Board proposes a dividend of SEK 1.50 (1.00) per share.
- Adjusted dividend policy: The dividend shall normally exceed 40% of income for the year(previous policy: 25–50%).
FOURTH QUARTER
Net Sales
Net sales for the fourth quarter increased by 1% to SEK 4,794m (4,732). Adjusted for exchange-rate effects, sales increased by 5% or by SEK 213m. Sales prices were relatively stable. Europe & Asia/Pacific accounted for an adjusted sales increase of SEK 236m, Americas for an adjusted sales decrease of SEK -53m and Construction for an adjusted sales increase of SEK 30m. Efforts to grow sales in the dealer channel continued to be successful.
Operating Income
Fourth quarter operating income amounted to SEK -63m (-515). Currency changes had a positive effect of
approximately SEK 20m. The comparable figure for 2009 includes items affecting comparability amounting to
SEK -340m. Thus, adjusted operating income increased by SEK 92m.
The increase in adjusted operating income was mainly a result of higher volumes and favorable channel and
regional mix, which was slightly offset by higher selling and administrative costs. The operating margin,
excluding items affecting comparability improved to -1.3% (-3.7).
Operating income and operating margin for all business areas improved. Excluding items affecting
comparability, operating income and operating margin for Europe & Asia/Pacific and Construction improved,
but decreased for Americas.
Changes in exchange rates, including both translation and transaction effects net of hedging, had a total
positive effect on Group operating income of SEK 20m (46). Hedging contracts had a negative effect of
SEK -8m (-61).
FULL YEAR
Net Sales
Net sales declined by 5% to SEK 32,240m (34,074). Adjusted for exchange rate effects, sales increased 0.4% or by SEK 142m. Sales prices were relatively stable. Europe & Asia/Pacific accounted for an adjusted sales increase of SEK 894m, Americas for an adjusted sales decrease of SEK -913m and Construction for an adjusted sales increase of SEK 161m. Efforts to grow sales in the dealer channel were successful and dealer sales grew double digit in all markets.
Operating Income
Operating income increased by 57% and amounted to SEK 2,445m (1,560). Currency changes had a positive effect of approximately SEK 150m and the net positive effect from items affecting comparability was SEK 245m. Adjusted operating income thus increased by SEK 490m.
The increase in adjusted operating income was mainly a result of favorable channel and regional mix, higher
volumes and lower material costs, which was partly offset by higher costs for distribution and IT.
The operating margin, excluding items affecting comparability, increased to 8.2% (5.9). Operating income
includes restructuring charges of SEK -207m for the closure of production facilities in North America and
Greece and costs related to a legal case in North America. 2009 included items affecting comparability totaling SEK -452m related mainly to restructuring charges.
Operating income and operating margin for Europe & Asia/Pacific and Construction increased, but decreased for Americas.
Changes in exchange rates, including both translation and transaction effects net of hedging, had a total
positive effect on operating income with SEK 150m (30). Hedging contracts had a positive effect of
SEK 80m (–109).
NET FINANCIAL ITEMS
Net financial items for the fourth quarter amounted to SEK -136m (-33) and for the full year to
SEK -394m (-466). The full-year improvement is primarily due to lower net debt and lower interest rates during the first half of the year. The average interest rate on borrowings at the end of the year was 4.8% (3.2). The increase is due to a change in the currency mix of the net debt.
INCOME AFTER FINANCIAL ITEMS
Income after financial items for the fourth quarter improved to SEK -199m (-548) corresponding to a margin of -4.2% (-11.6). For the full year income after financial items increased by 87% to SEK 2,051m (1,094),
corresponding to a margin of 6.4% (3.2).
TAXES
Taxes amounted to SEK -302m (-191), corresponding to a tax rate of 15% (18) of income after financial items. The tax rate is positively affected by utilization of tax-losses carried forward.
EARNINGS PER SHARE
Income for the fourth quarter improved to SEK -124m (-452), corresponding to SEK -0.21 (-0.79) per share after dilution. For the full year, income increased by 94% and amounted to SEK 1,749m (903), corresponding to SEK 3.03 per share (1.64).
OUTLOOK FOR THE FIRST QUARTER 2011
The Group’s shipments to the trade in the first quarter of 2011 are expected to be higher compared to the first quarter of 2010.
Inventories of the Group’s garden products at retailers and dealers at the end of the year are estimated to
have been on the same low level as one year ago. The Group’s listings with retailers for the 2011 season have
been improved, both in North America and in Europe, in comparison to 2010. End-user demand is also
expected to continue to recover. In 2010, the long winter delayed the start of the season and pre-seasonal
shipments were partly pushed from the first to the second quarter.
OPERATING CASH FLOW
Operating cash flow for the full year amounted to SEK 962m (3,737). Inventories and trade receivables
increased. The higher inventory resulted in a negative cash flow amounting to SEK -645m (1,678) and the
higher trade receivables resulted in a negative cash flow of SEK -331m (694). The inventory increase is mainly a result of a temporary build-up of inventory to facilitate the ongoing restructuring of the manufacturing
footprint. The increase in trade receivables is mainly explained by higher sales during the end of 2010
compared to end of 2009.
PERFORMANCE BY BUSINESS AREA
As of January 1, 2010, the external reporting comprises three business areas:
• Europe & Asia/Pacific (forest, park and garden products in Europe and the Asia/Pacific region)
• Americas (forest, park and garden products in North America and Latin America)
• Construction (global sales of products for the construction and stone industries).
The majority of the Group’s sales are park and garden products, which show a distinct seasonality in terms of
sales and income. The first half of the year normally accounts for around two thirds of annual sales, with the
second quarter usually being the strongest. The fourth quarter is normally the smallest quarter in terms of both
sales and income.
Forestry products show stronger demand and somewhat higher sales during the second half
of the year, while equipment for the construction industry normally shows a more even distribution of sales
throughout the year.
Sales for Europe & Asia/Pacific in the fourth quarter increased 5%. Adjusted for exchange-rate effects sales
increased 10%. For the full year, sales were unchanged. Adjusted for exchange-rate effects, sales for the full
year increased 6%. Sales prices were relatively stable during the year.
Sales to the dealer channel developed strongly throughout the year. Most countries, except for UK and France, had higher sales than in the preceding year. Several new products, including Husqvarna branded lawn mowers, riders and an expanded Automower® range, contributed to the increase. Sales of Gardena branded watering products were also strong. Total market demand in the Europe and Asia/Pacific region is estimated to have increased compared to the preceding year. It is also estimated that the Group strengthened the market shares in several product categories, including lawn mowers and riders, during the year.
Operating income and operating margin improved in the fourth quarter. The higher operating income was
mainly a result of higher sales and improved mix. The fourth quarter 2009 includes items affecting
comparability amounting to SEK –188m. There were no items affecting comparability in the fourth quarter
2010. Adjusted operating income for the fourth quarter 2009 amounted to SEK -82m.
For the full year, operating income and operating margin increased substantially. The increase was mainly a
result of higher volumes and improved mix. The mix improved as a result of better product and channel mix, as dealer sales grew more than retail sales.
Operating income for 2009 includes items affecting comparability amounting to SEK -300m. There were no
items affecting comparability in 2010. Operating income, excluding items affecting comparability, increased to
SEK 2,383m (1,710) and the corresponding operating margin increased to 14.3% (10.3).
AMERICAS
Sales for Americas in the fourth quarter decreased 5%. Adjusted for exchange-rate effects the decrease was
3%. For the full year, sales decreased 13%. Adjusted for exchange-rate effects, sales for the full year decreased by 7%. Sales prices were relatively stable during the year.
Total market demand in North America increased after four years of decline. Industry shipments increased for most product categories but chainsaws. Reduced listings with a major retailer in North America for the 2010 season had a negative effect on sales throughout the year. Efforts to grow sales in the dealer channel and with other retail accounts were successful, but could not fully compensate the reduced listings. Sales in the dealer channel increased double digit, however from a low level.
Operating income in the fourth quarter improved to SEK -39m (-105). Operating income in the fourth quarter 2009 included items affecting comparability related to restructuring charges of SEK -98m. There were no items affecting comparability in the fourth quarter 2010. Adjusted operating income for the fourth quarter 2009 amounted to SEK -15m. Excluding items affecting comparability, operating income was negatively affected by lower volumes, mix and higher costs for distribution.
For the full-year, operating income was negatively affected by lower volumes which to some extent were offset by improved mix. Costs for distribution and IT increased as well as costs for merchandising and marketing in association with efforts to grow sales to dealers.
Operating income for 2010 includes items affecting comparability amounting to SEK -160m (-98) of which SEK - 110m is related to the closure of the plant in Beatrice and SEK -50m to the settlement of an engine-capacity
lawsuit.
CONSTRUCTION
Sales for Construction in the fourth quarter increased 1%. Adjusted for exchange-rate effects sales increased
5%. In the full year, sales increased 2%. Adjusted for exchange-rate effects, sales in the full year increased 6%, of which sales in the US accounted for the majority of the increase. Sales prices were relatively stable.
Total market demand for construction products improved in both North America and Europe during the year.
Sales to all sales channels – rental companies, dealers and contractors – increased. A number of new products were successfully launched and the Group’s market shares are estimated to have increased.
Operating income and margin in the fourth quarter improved, mainly as a result of higher volumes, improved
mix and lower items affecting comparability. Operating income for the fourth quarter 2009 includes items
affecting comparability amounting to SEK -54m. There were no items affecting comparability in the fourth
quarter 2010. Adjusted operating income for the fourth quarter 2009 amounted to SEK -13m.
For the full year, operating income increased to SEK 82m (-123) and the operating margin improved to 3.1% (-4.7), mainly as a result of higher volumes as well as sales of new products with higher margins.
Operating income for the full year was charged with restructuring costs amounting to SEK -47m (-54).
Operating income for the full year, excluding items affecting comparability, increased to SEK 129m (–69) and
the corresponding operating margin increased to 4.8% (–2.6).
RESTRUCTURING
In 2010, the Group announced further restructuring to increase efficiency by consolidating the manufacturing
footprint. The production facility in Beatrice, Nebraska, was closed and the production was transferred to the
plant in Orangeburg, South Carolina. The production facility for construction products in Athens, Greece was
also closed. Annual savings from the initiatives will amount to SEK 60m and will be realized gradually with full
effect from the first quarter of 2012. Operating income was charged with SEK 157m, of which the closure of the Beatrice plant accounted for SEK 110m.
In October 2009, the Group announced the implementation of a number of structural changes during 2009–
2011. These measures are aimed at eliminating overlaps and increase efficiency within production and
administration which involves consolidation of production in Sweden and the US, and of the sales organization in Europe & Asia/Pacific. The total cost of these measures amounts to SEK 399m and annual savings are expected to approximately SEK 400m, and will be realized gradually from the second half of 2010 with full effect from the beginning of 2012. Capital expenditure related to the restructuring is expected 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.
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