Engine equipment maker Briggs & Stratton Corporation (NYSE: BGG) continues to struggle with the impact on earnings of a snow engine recall. Thus far in fiscal 2008, warranty expenses for the snow engine recall total more than $20 million in 1Q2008 and an additional $18 million in 2Q2008. Even though net sales increased by 13% to $479 million, the company is still running a half-year operating loss of $15 million due to the negative impact from warranty expenses. To cover the warranty expenses, Briggs & Stratton sold an investment in preferred stock, realizing $25 million in after-tax gains.
Briggs & Stratton 2Q earnings were also negatively affected by higher fixed-production costs but lower production output due to expenses incurred in closing one production facility and opening a new production facility for lawn and garden equipment. A bit of good news was that interest expense for the quarter was down due to lower average borrowing because of inventory reductions.
The company is forecasting FY2008 net income in the $60-$68 million range, with diluted EPS of $1.21-$1.37, if -- and it is a big if -- net sales grow at a rate of 7%-8%. Investors were prepared for the unpleasant earnings news. The stock closed recently at just over $17, with little drop in price as a result of the earnings downturn.
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