Improving Consumer Expectations Bode Well For Briggs & Stratton

Jul. 1.13 | About: Briggs & (BGG)

The Consumer Confidence Survey released June 25, 2013, showed that consumers are feeling more optimistic. The most important element of the survey for now may be the Expectations Index, which rose to 81.4, from a reading of 74.3 in May. The report quotes the Conference Board's Director of Economic Indicators Lynn Franco: "Consumers are considerably more positive about current business and labor market conditions than they were at the beginning of the year."

This uptick in consumer confidence bodes well for firms in a variety of sectors. Tool and equipment sales should pick up considerably - the reasoning being that during the recession many homeowners delayed purchasing new mowers or other lawn and garden equipment because they felt insecure about their long-term job prospects and pessimistic regarding the value of their homes. As consumers feel more confident, and home values are coming off their bottoms in most markets, homeowners are more likely to replace their old mower, or the dilapidated generator they keep at their camp. Briggs & Stratton also stands to gain from a very rainy and wet spring and early summer in the Northeastern states, and expectations of an increase in generator sales related to a hurricane season that's expected to be stronger than average along the Gulf and East coasts.

Briggs & Stratton (NYSE:BGG) manufactures small engines, which are used in push mowers, riding mowers, generators, power washers and edgers. BGG is currently the world's largest manufacturer of air-cooled single-cylinder and V-Twin engines, and Briggs & Stratton powered equipment can be found in almost every hardware or lawn and garden store in America. Looking back at annual reports for 2011, 2012 and the first six months of 2013 one sees the company was beset by several years of declining sales and losses associated with weak snow, droughts, and a company restructuring. As of this article the company was trading at $19.80, versus a 52-week high of $25.52 and a low of $16.20. The company pays a dividend rate of 0.48 and has a yield of 2.42.

With improving consumer expectations comes an improved outlook for lawn and garden equipment sales. The recession and decline in home values prompted consumers to hold off on new equipment purchases, and there is likely to be sales growth from pent up demand as the economy continues to improve and home prices stabilize. A very wet and rainy early summer in the Northeast, along with expectations of a severe hurricane season in the Gulf and East Coast states should boost small engine sales. In spite of past difficulties, there's reason to believe that Briggs & Stratton has hit its bottom and will soon exceed its 52-week high of $25.52, on its way to becoming an excellent long-term hold option.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.