Husqvarna AB (HUSQB), the world’s biggest maker of powered garden tools, sees signs of improving U.S. demand, acting Chief Executive Officer Hans Linnarson said.
Sales and retailers’ preliminary orders for 2012 indicate that U.S. demand may be recovering in a business that is worth an estimated $22 billion in annual global sales, Linnarson said in an interview at the company’s Stockholm office.
“There are some small signals that it’s starting to go up in the U.S.,” Linnarson said Nov. 9. “I think the U.S. will come out of this recession before Europe.”
The maker of lawnmowers, chainsaws and other tools under the McCulloch, Gardena and Husqvarna brands generates 40 percent of its revenue in the Americas, of which some 85 percent is in the U.S. This year’s profits have been sapped by production problems at its biggest plant, in Orangeburg, South Carolina.
Husqvarna shares jumped 5.7 percent to 32.3 kronor at 4:03 p.m. in Stockholm trading, the biggest climb since Oct. 20. The STOXX Europe 600 Index increased 2 percent. Husqvarna shares have fallen 41 percent so far this year, compared with a 36 percent decline of the STOXX Europe 600.
The U.S. slowdown has prompted many garden equipment buyers to opt for less expensive tools, said James C. Lucas, an analyst at Janney Montgomery Scott LLC in Philadelphia.
“As people are watching their budgets more closely, they may start mowing their own yards instead of using a professional landscaper,” Lucas said. “But instead of buying a $5,000 riding tractor, they’ll buy a $300 push mower. From a profitability and margin standpoint, there’s a substantial difference.”
U.S Market ‘Tougher’
One of the Huskvarna, Sweden-based company’s main goals is to boost its U.S. profitability, Linnarson, 59, said. Europe and the U.S. represent about 90 percent of the total market for powered garden equipment. The operating margin in the Americas, which also includes Canada and South America, was 1.2 percent last year, compared with 14.3 percent for Europe and Asia- Pacific. Husqvarna aims for operating profit’s share of sales in the Americas to rise to 5 percent in three to five years, he said.
The U.S. retail market is “much, much tougher” than in Europe, Linnarson said, adding that profitability in North America has suffered because 80 percent to 90 percent of sales are to consumers, a lower-margin business than selling to gardening professionals.
Husqvarna wants to boost its professional business in the U.S., he said. It also aims to focus more on the big retailers that target customers who are prepared to spend more, he said. Husqvarna’s biggest U.S. retailers are Sears Holdings Corp. (SHLD), Home Depot Inc. (HD), Lowe’s Cos. and Wal-Mart Stores Inc. (WMT), he said, declining to divulge which retailers may gain business.
Husqvarna’s shares have plunged 44 percent this year, compared with 19 percent for the Stockholm SAX index, as it’s been dogged by the Orangeburg production issues and leadership uncertainty. Linnarson took over as acting CEO in June after Magnus Yngen took a medical leave and then retired in August. The production issues have been resolved, Linnarson said last month. He declined to comment yesterday on the appointment of a permanent CEO or whether he’s a candidate.
Husqvarna will target costs by trying to double the share of components it buys from low-cost countries, Linnarson said. The company, founded as a weapons foundry in 1689, was spun off from appliance maker Electrolux AB (ELUXB) in 2006. It wants to increase the sourcing of parts from countries with lower wages to more than 50 percent from 26 percent in three years, the executive said. Husqvarna has 2,400 suppliers, including Briggs & Stratton Corp. (BGG) for lawn-mower engines, and Blount International Inc. (BLT) for chainsaw parts.
“There are more and more possibilities to find new suppliers, there are so many newcomers,” he said.
Countries where Husqvarna is looking for new suppliers include India, Vietnam, the Czech Republic, Poland and Hungary. Husqvarna does not foresee any “big” factory closings as a result of shifting suppliers, he said.
To contact the reporter on this story: Ola Kinnander in Stockholm at firstname.lastname@example.org
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