Hurt by the implosion of the domestic housing market, the US lawn and garden industry recently suffered through a contraction that lasted more than a decade, explains Taesik Yoon, editor of Forbes Investor.
For Briggs & Stratton (BGG), a maker of engines that go into outdoor power equipment such as lawn mowers, this resulted in a steady decline in net sales and inconsistent earnings, which have trailed well below what the company earned in its fiscal 2004 peak year.
BGG is the world’s largest producer of air-cooled gasoline engines used by original equipment manufacturers (OEMs), such as Husqvarna and Deere, in their outdoor power equipment.
Back in early 2012, after suffering through a significant and prolonged decline of the US lawn and garden market, BGG took a number strategic actions designed to help it return to more sustainable top-line growth and significantly improve profitability over the longer-term.
While the persistence of a challenging demand environment has hampered these efforts over the past several fiscal years, BGG’s impressive recent performance suggests that its operations may finally be on the mend.
With the recent acquisition of Allmand Bros., a leading designer and manufacturer of high quality towable light towers, industrial heaters, and solar LED arrow boards, BGG continues to focus on adding businesses that operate within higher-margin/higher-growth markets.
In terms of its existing businesses, we think near-term growth will remain strong, supported by continual demand for higher-margin engines that go into commercial zero turn riding mowers.
We also have high expectations for BGG’s all-new EXi series small engine platform, the first walk-behind lawn mower engine that will never need an oil change. It is also the lightest engine in its class.
BGG recently increased its net sales and income guidance for the current year to $1.94-$2.0 billion and $1.14-$1.35 per share, respectively, from prior ranges of $1.88-$1.94 billion and $1.07-$1.27 per share.
At the midpoint, this implies sales and earnings growth of 8.8% and 24.4% for the remainder of fiscal 2015.
With management appearing to take a conservative view on growth expectations for both the walk-behind and riding lawn mower markets in the coming year, we think there’s a good chance that actual results will continue to exceed expectations. We are adding the stock to our model portfolio.
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