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July 28, 2004

Luc Mageau BComm

lucmageau@shaw.ca

(780)473-1618

155 North Wacker Drive ( Chicago, IL 60606

Briggs & Stratton Corp. (BGG – NYSE) $74.06

Overview

Briggs & Stratton Corp. is based on Wauwatosa Wisconsin, and was incorporated in 1910. It is a leading producer of air-cooled gasoline engines for outdoor power equipment. The company is organized into two reportable segments, engines and power products.

Briggs & Stratton Power Products Group, LLC is the outdoor power equipment manufacturing division of Briggs & Stratton producing pressure washers, portable generators, standby generator systems, outboard motors, welders and pumps. These products are manufactured, marketed and distributed to retailers and dealers in more than 90 countries and seven continents. BGG started this segment as a result of its acquisition in 2002 of Generac.

The engines department is primarily aluminum alloy gasoline engines, from 3 to 25 horsepower. BGG has the leading market share of engines used in lawn and garden applications.

BGG’s three largest customers account for about 48% of engine sales, and 41% of company wide sales. These customers include Electrolux (whose primary customer is Sears), MTD (primary customer is Lowes, and Wal-Mart), and Murray (primary customer is Home Depot and Wal-Mart)

The company has just announced (June) that it is acquiring Simplicity Manufacturing, which produces premium consumer and commercial lawn and garden power equipment for $227.5 million, this will double the power products segment.

NOTE: Briggs & Stratton fiscal year ends on June 30; all calendar references are to the fiscal year. There were only two brokerage firms available for coverage in this report.

|Positive Arguments / Company Strengths |Negative Arguments / Company Threats |

|Favorable Industry/Company trends |Recent buildup of inventory level and manufacturing capacity |

|Good competitive position, market share of 70%+ |Raw materials represent roughly 50% of costs, and are on rise |

|Best cost position in industry |Concentrated customer base (3 customers make up 41% of revenues) |

|Simplicity (Snapper, Ferris, Giant-Vac) acquisition may add more than |Highly variable Q to Q cash flow due to seasonality |

|management guidance suggests to FY 05 earnings |Sales are influenced highly by weather |

|Very shareholder friendly company |Market is very competitive |

|EVA based management incentive program | |

|High quality reputation, and overall good brand recognition | |

|Constantly bringing new products online | |

Analysts generally agree that BGG has very good brand recognition, and reputation. Their extensive distribution of products has made them very well known, and one of the best in their industry. However, analysts also state that the company suffers from high seasonality. Its concentration of customers may also be a major risk to the company, and if one of these customers falls into hard times, BGG would suffer because of it.

Sales

|Consensus Revenue |[2003] A |[2004]E |[2005]E |% of 2004 Total Rev.|Est. Growth (03 to |

| | | | | |05) |

|Engine | $ 1,429 | $ 1,608 | $ 1,670 |84.30% |16.86% |

|Power Products | $ 327 | $ 461 | $ 491 |24.20% |50.15% |

|Eliminations | $ (99) | $ (163) | $ (169) |-6.60% |-70.70% |

|Total Revenue | $ 1,658 | $ 1,907 | $ 2,120 |  |27.86% |

[R.W. Baird] points out that Engine revenue increased 17% from the prior year, and was 6% ahead of estimate. The upside was primarily due to a 13% increase in shipments, higher average selling price, and favorable currency effects. Engine production volumes increased by 13% in the quarter.

Growth in the Power Products department has been a major player in BGG’s plan. Revenue increased 32% from last year. Pressure washer shipments increased by 40%, believed to have made up approximately two thirds of the sales increase in the segment.

Although no specific geographic breakdown of sales were disclosed, BGG notes that it does business in 90 countries, and 7 continents, with its main production plants in the USA. Sales within the US accounted for 93% of company revenues in 2003, and expected to remain relatively constant in 2004.

|Consensus Quarterly Revenue |[Q3 2004]A |[Q2 2004]A |% Change |[Q3 2003]A |% Change |Reason(s) |

|Engine |$582 |$358 |62.57% |$497 |17.10% |High |

|Power Products |$126 |$98 |28.57% |$95 |32.63% |Generator Shipments |

|Eliminations | $ (53) | $ (40) |-32.50% | $ (32) |-65.60% |  |

|Total Revenue |$655 |$416 |57.45% |$560 |16.96% |  |

Growth in the Power Products segment was well above analyst expectations. The company credits this to a 34% rise in generator shipments, and 40% rise in Pressure washer shipments. Engine production was up, contributing to the Increase in sales in that segment. The weather has also played a major part in this process, as this is a main driver for sales of all BGG products.

Margins

Gross Margin

|  |[2003]A |[2004]E |[2005]E |Trend |

|Engine |20.00% |24.00% |24.00% |Up |

|Power Product |12.00% |13.00% |13.00% |Stable |

|Total |20.00% |23.00% |24.00% |Up |

Operating Margin

|  |[2003]A |[2004]E |[2005]E |Trend |

|Engine |9.00% |12.00% |13.00% |Up |

|Power Product |6.00% |7.00% |7.00% |Stable |

|Total |9.00% |12.00% |13.00% |Up |

Net Margin

|  |[2003]A |[2004]E |[2005]E |Trend |

|Total |5.00% |7.00% |8.00% |Up |

All sector operating margins (except Power Product) show increases. The increase in the Engine sector is very favorable, as this makes up the majority of the companies business. Margins for the Engine segment exceeded analyst expectations. Over half the margin improvement was attributed to increased sales volume, combined with some cost reduction.

Margins for the Power Products sector fell below analyst estimates. However, margins benefited from an increase in production, as more units produced absorbed fixed costs. [R.W. Baird] also notes that the shortfall to expectations stemmed from adverse currency movements, especially in Italy, which reduced income by approximately $5 million.

Please see the separately saved spreadsheet for more details.

Earnings Per Share

|Fiscal Year Ended June 30 |[Q3 2004]A |[Q4 2004]E |[Q1 2005]E |[Q2 2005]E |[Q3 2005]E |[FY04]E |

Please see the separately saved spreadsheet for more details.

Target Price/Valuation

There were 2 target price valuations available for Briggs & Stratton. The highest estimate was from [Raymond James] who reported a target of $105.00. This was derived from applying a 16X multiple to their 2006E EPS estimate. The lowest estimate was from [R.W. Baird] of $93.00. [R.W. Baird's] estimate was arrived at by using a 13X forward P/E multiple on EPS estimates.

Please see the separately saved spreadsheet for more details.

Upcoming Events

|EVENT |DATE |

|Q4 Earnings Results to be announced |August 5, 2004 |

|Acquisition of Simplicity Manufacturing |June 2, 2004 |

|$0.33 per share dividend paid |June 1, 2004 |

Long-Term Growth

The acquisition of Simplicity is good for long term growth as it was acquired at a reasonable price and (9x EBIT). This company has good margins, is in the same industry the BGG is currently in, with good growth prospects. [Raymond James] estimates this company will be EVA positive without synergies within two years. The long term implications of this acquisition is that, Simplicity now allows BGG to get into another aspect of the small engine, and power products segment that they previously did not have.

BGG has just started production on its microengine. Sears has picked it up in their trimmers, and is already scheduled for a father’s day roll out. This microengine is more efficient than previously, and will bode well in the energy concious industry this market is moving to.

Some long term risks include raw materials prices. The price of aluminum is a significant contributor to BGG cost of sales, and prices have been increasing. BGG can offset this in the long term with longer term supplier contracts, but this higher price could nevertheless affect future margins.

Individual Analyst Opinions

POSITIVE RATINGS

Raymond James – Stock is rated Strong Buy (updated 6/21/2004) Rating is hinged on four points. (1) Recent industry and company trends have been favorable, which bodes well for retailer orders in the coming fiscal year. (2) Brigg’s competitive position is formidable. (3) Simplicity acquisition will be more accretive to earnings in fiscal 2005 than management’s guidance. (4) BGG management team and shareholder-friendly philosophy is positive.

R.W. Baird– Stock is rated Out-Perform (updated 4/23/2004). Brigg’s quality, and brand recognition should serve as a growth driver as Briggs enters new product segments (generators, power washers and outboard marine engines). The substantial market share is impressive, but even better, there is ample opportunity to grow with new products. These combined with BGG’s strategy of bringing new products to the market, show the potential for the business. Even though it is in a highly seasonal market, BGG seems to keep cash flow in check. They have also began to get into markets that may level out the seasonality effect (with snowblowers, etc.)

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Research Digest

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