Brunswick swings to Q3 loss on charges
Despite dismal sales in its boat and marine segments, Brunswick Corp.'s (NYSE: BC) fitness business, comprised of Life Fitness, Hammer Strength and Parabody, was the lone bright spot, posting an 8-percent increase in sales.
Third-quarter sales for the fitness segment were $161.6 million, up from $150.2 million in the year-ago quarter. Operating earnings for the quarter totaled $10.3 million, down from $11.8 million for the third quarter of 2007, and operating margins were 6.4 percent versus 7.9 percent a year ago. The fitness segment recorded $0.8 million in restructuring charges during the third quarter of 2008.
"Commercial equipment sales, which account for about 90 percent of Life Fitness' business, were strong in all regions during the third quarter. This helped offset the drop in sales of consumer products in the United States," said Dustan McCoy, CEO of Brunswick, during a conference call with analysts and media.
"Life Fitness has been making steady progress at reducing costs and indeed, like other portions of Brunswick, has been attacking not only operating costs, which were down single digits in the quarter, but also other fixed costs. The cost reduction efforts helped to blunt the affect of both higher material prices particularly those of steel as well as increased freight costs due to fuel surcharges," he added.
Asked by an analyst if Brunswick is considering a sale of the fitness or other businesses, McCoy said, "I'll never say never, and I won't say we're out looking." He added, "It is evidence of the fact that we're looking through the portfolio and saying, these are areas that are not likely to be growth opportunities for us, or generate EBITDA levels that will satisfy us, so we're getting out so we can redirect funds, so yes, that's something we're looking at constantly."
For the entire company, it lost $591.4 million, or $6.70 per share, on hefty charges, writedowns and production cuts. That compares with a profit of $1.9 million, or $0.02 per share, during the same period last year.
The results included goodwill and trade-name impairment charges of $4.31 per share, restructuring charges of $0.28 per share and other charges totaling $1.78 per share.
For the period ended Sept. 27, Brunswick's revenue dropped 22 percent to $1.04 billion from $1.33 billion.
Brunswick, which is contending with near record-low sales of recreational boats amid a sluggish economy and limited discretionary spending, is cutting more than 2,400 jobs this year as it shuts at least four plants. It's also furloughing workers at three more locations.
Analysts update coverage on Cybex
Two analysts weighed in on Cybex's (Nasdaq: CYBI) financial future, updating rankings and target prices.
Stephens Inc. analyst Rick Nelson re-established Cybex's research coverage with 2008 and 2009 EPS estimates of $0.26 and $0.30, respectively.
"The company weathered a difficult 3Q operating environment with revenue growth of 10 percent and 3Q EPS of $0.02 versus consensus expectations of break even," Nelson wrote in a research brief to clients. "While macropressures reduce near-term visibility, we remain attracted to the Cybex brand, historical track record, solid balance sheet, and low EV/EBITDA multiples."
Nelson rated the stock "Overweight" and established a target price of $5 based on an EV/EBITDA multiple of 6x.
"The company has enjoyed revenue growth partially due to the expansion of major health club chains. Should growth slow in the commercial health club business, Cybex could be adversely affected," wrote Nelson. "While the company believes exercise is becoming more of a health necessity, many people still consider exercise a leisure activity. Demand for exercise equipment may be adversely affected by a downturn in general consumer sentiment and macroeconomic conditions."
DA Davidson & Co. is taking a more cautious view of Cybex's 2009, lowering revenue expectations and price target.
"Our FY08 EPS estimate goes from $0.24 to $0.23 on slightly lower revenue expectations for 4Q. We are taking a more cautious view of FY09, cutting our EPS estimate from $0.32 to $0.26 to reflect concerns about slowing demand due to the economy," wrote analyst Reed Anderson in a client note.
Based on lower EPS, Reed reduced his price target from $3.25 to $2.75, still implying a multiple of 10x FY09 EPS. He also maintained a "Neutral" ranking.
Life Time Fitness' Q3 sales and profit post double-digit percentage increases
Revenue for Life Time Fitness (NYSE: LTM) grew 17.3 percent for the third quarter driven primarily by growth in membership dues and in-center revenue.
Revenue was $198.8 million from $169.5 million during the same period last year.
Net income during the quarter grew 17.6 percent to $21.6 million, or $0.55 per diluted share, compared to net income of $18.4 million, or $0.48 per diluted share, in 2007.
Total operating expenses were $156.7 million compared to $131.9 million last year on increased expenses to support new centers, membership growth and presale activities.
Operating margin was 21.2 percent compared to 22.1 percent in the prior-year period.
EBITDA grew 15.9 percent to $61.2 million from $52.8 million in 3Q 2007.
For the year, the company's guidance expects revenue to be $775 million to $780 million, or approximately 18-percent to 19-percent growth from new center growth, membership ramp at new and existing centers, and in-center revenue growth. Net income is expected to go up 16 percent to 18 percent to $79.0 million to $80.5 million, while the company anticipates diluted earnings per common share of $2.01-$2.04.
Hanesbrands says Mervyns liquidation will hurt Q3 results
Hanesbrands (NYSE: HBI), parent of Champion, said it would take a charge in the third quarter due to Mervyns' decision to liquidate its stores. It will take bad-debt charge, related to the filing, of $5.5 million, or $0.04 per share, for the quarter ended Sept. 27.
Excluding one-time charges, the company expects earnings of $0.56 per share. Including the bad-debt charge and $0.35 per share in restructuring costs, the company expects a profit of $0.17 per share.
Department-store chain Mervyns, which filed for Chapter 11 bankruptcy protection in July, said last week it will begin to liquidate its remaining 149 stores and wind down its business.
--Compiled by Wendy Geister with SNEWS Editors
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