The Briggs & Stratton
Briggs & Stratton's struggles are not unique. The competitor that it most closely resembles, Tecumseh
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.
Fool contributor Michael Goode lives in St. Louis. He has no position in any company mentioned. His Briggs & Stratton lawn mower engine is sputtering just like the company, which likely is due to his tendency to mow rocks and tree stumps. The Motley Fool has a disclosure policy that never needs sharpening.