Engine powerhouse Briggs & Stratton (NYSE:BGG) reports its fiscal Q2 2007 earnings results on Thursday. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Half a dozen analysts follow Briggs, splitting their votes evenly between buy and hold.
  • Revenues. On average, they're looking for sales to fall 19%, to $466.5 million.
  • Earnings. Worse, they predict last year's profits will give way to a $0.05 per-share loss.

What management says:
Briggs management painted anything but a pretty picture in last quarter's earnings release. On the one hand, generator sales weakened in the absence of many significant hurricanes last year. On the other, engine sales to lawn and garden equipment manufacturers seem to have weakened "just because." (For further insight on the latter, click here to see what fellow Fool Rich Duprey read in between those lines.)

Management isn't expecting the rest of this year to get much better, either. In the outlook section of the Q1 release, they predicted flat sales this year, in comparison to last. Worse, this isn't an entirely cyclical industry-specific kind of a problem -- Briggs "anticipate[s] that [its] market share may be down slightly."

What management does:
Over the last six months, we've seen Briggs' sales fall 28% year over year, while cost of goods sold fell 26%. As a result, gross margins have been slipping, but not much. The real damage to Briggs' profitability relates to operating costs. They're down just 1% year over year despite the much larger sales slide, compressing operating and net margins dramatically.

Margins %

7/05

10/05

1/06

4/06

7/06

10/06

Gross

19.0

18.9

18.8

19.6

19.3

19.2

Op.

7.4

7.5

8.3

8.7

7.5

6.6

Net

5.1

5.2

5.6

5.0

4.0

3.4
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
And there's more news like that on the way, I fear. In last quarter's earnings release, Briggs warned that in response to the weak sales environment, and the anticipated continuation of same, it is "lowering [its] production output." As a result, "the loss of production volume will also increase ... operating costs as [the company gets] less utilization of [its] fixed investment at several plants." Translation: Because Briggs will be manufacturing fewer goods, fixed costs will be spread out over fewer sales -- compressing margins further.

If there's a silver lining to be found at Briggs, I would think it's in the following: Although the firm projects continued plummeting generator sales -- for the same reasons this quarter as last -- and although it further expects continued weakening of engines for lawn and garden equipment, the reason for the latter owes more to timing than to demand. Original equipment manufacturers appear to be shifting toward a just-in-time business model, in which they want to take shipment of engines closer to the spring 2007 growing season. That suggests the bleeding may begin to slow, if not stop, in the second half of the year.

Competitors:

  • Honda (NYSE:HMC)
  • Tecumseh Products (NASDAQ:TECU-A)
  • Toro (NYSE:TTC)

For more depressing news on Briggs & Stratton, read:

Fool contributor Rich Smith does not own shares of any company named above.