Briggs & Stratton's Engine Sputters

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The Briggs & Stratton (NYSE: BGG) name is on the engines of many of the gasoline-powered lawn mowers that are a staple in American life. Yet despite its ubiquity and history, the company has struggled of late. In the fiscal year that ended in July, Briggs & Stratton basically broke even. In the most recent quarter, it reported a loss of $20.5 million, or $0.41 per share.

Briggs & Stratton's struggles are not unique. The competitor that it most closely resembles, Tecumseh (Nasdaq: TECUA), has not been profitable for the last couple of years. Toro (NYSE: TTC), which buys some of its engines from Briggs & Stratton, just reported disappointing earnings. There are a couple of bugaboos that have been, well, bugabooing engine makers. Higher steel and aluminum prices are an important factor, as is increasing competition from Chinese engine manufacturers.

The Chinese and other low-cost manufacturers are perhaps the biggest threat. Most of Briggs & Stratton's manufacturing is in the U.S., and it has only one manufacturing plant in China. As the Chinese improve their manufacturing skills and capital base, they will continue to improve their engines, while also driving prices down. While the company argued on its conference call that the Chinese have not yet equaled it in quality, it should face the fact that manufacturing small gasoline engines is not exactly rocket science. It won't be long before the Chinese equal Briggs & Stratton's quality, while continuing to undercut its prices.

Despite its troubles, Briggs & Stratton did report some good news. Its inventories are down 11% from a year ago, despite increasing sales. The company has also trimmed its overhead, with selling, general, and administrative expenses $1.5 million less than the year-ago quarter.

But then, another bit of poor news: Sales of Briggs & Stratton portable generators dropped 47% from a year ago. The company disappointed me by blaming the sales decrease partly on the lack of hurricanes. Well, perhaps the company forgot, but there were not any big hurricanes last year either. I think housing troubles and consumers being tapped out in general are more important factors in the sales decrease. Anyway, the company has a major problem if it needs a major hurricane every year for its generator business to break even.

Related Foolishness:

• Foolish Forecast: Briggs & Stratton
• Tecumseh's Engines Revving Down