Briggs and Stratton: Things Can Only Get Better

May. 4.07 | About: Briggs & (BGG)

An all too familiar story is playing out at Briggs and Stratton (NYSE:BGG) these days as another American industrial manufacturer must begin to cut American jobs and outsource operations to ensure its survival.

Two weeks ago, BGG reported earning $7.8 million, or 15 cents per share, for the quarter. These numbers missed analyst expectations by so much that I don't think readers would believe them if I listed them. Compare these earnings to the $60 million, or $1.16 per share it made in the same quarter last year and it is hard to believe that the stock is at $31, only down roughly a buck since the report.

The outlook for the power tool and engine maker for the rest of the year does not look any better, with the company guiding down from $1.33 to 38-54 cents a share.

This recent performance proved to be a wake up call for BGG management. The company immediately broke out the cost cutting axe and started hacking. It will close a plant in Missouri and move production to China, while also reviewing the fate of another U.S. plant in Georgia.

Just this week BGG announced the possible shutdown of another U.S. plant in Port Washington, Wisconsin and the laying off of 500 workers. This chipper news was followed up by a corporate announcement that 41 more employees were being given the boot at an engine plant in Milwaukee.

I recommended BGG back in late October at $26.50. Although I sympathize with the American worker's plight, I still keep my buy recommendation on the stock here at 31.

First, the company is taking drastic measures to cut costs. Fundamentally I cannot see it getting much worse for the company and its sales, unless it goes out of business entirely.

Additionally, the company has recently seen some large stakes taken by the likes of Janus Capital and Barclay's in 07. All this could be pointing to a turnaround story or my guess is a buyout from someone.

Heck, the company's market cap is only $1.53 billion. This is a bargain in the new world of well-heeled private equity. Also, there is already so much negative investor sentiment weighing on the stock, approximately 24% of the float is short, that any bad news, such as hurricane weather, could power this stock higher.

BGG 1-yr chart:
bgg chart may 07