“Ice storm leaves one million without power in US northeast” - AFP, December 14, 2008.
For retailers, the thought of one million potential shoppers iced in with no power over a weekend in December is the worst form of nightmare. And that’s in normal times. For Briggs & Stratton (NYSE:BGG) however, ice storms create power outages, and power outages create opportunity.
Power outages fuel demand for Briggs & Stratton generators. And not just ordinary demand -- the kind of demand that tends to be inelastic and lasts as long as the memory of the pain and cost of days and (possibly) weeks with no electricity.
Known in the industry as the “snow blower effect,” last year’s weather tends to drive strong demand for snow products and generators at the start of next year’s selling season. The same holds true for hurricanes. For BGG, last year’s heavy Midwest snows and the damage from Hurricane’s Ike and Gustav drove strong and continuing demand for its generators and snow products. This demand translated into strong sales as noted in the Q1/2009 earnings release:
Engines: Fiscal 2009 first quarter net sales were $258.6 million, $50.2 million or 24% greater than the prior year. This increase reflects a 27% increase in engine unit shipments compared to the same period a year ago.
Power Products: Fiscal 2009 first quarter net sales were $255.5 million, $68.1 million or 36% greater than the prior year. The increase in sales was primarily due to increased sales of portable generators due to a number of hurricanes making landfall in the United States in our first quarter.
For the balance of the winter and looking ahead to the 2009 hurricane season, the consensus outlook for a snowy winter in the heavily populated northeastern US and another above average hurricane season is good news for BGG.
Assuming the company is able meet the demand and fulfill the orders, the forecasts of continuing bad weather bode well for Briggs & Stratton.
Disclosure: No Positions.