Fitness financials: Cybex's Q3 profit plummets, plus Brunswick, GSI, Nike

Cybex's Q3 profit plummeted, an RBC analyst called the Brunswick sell-off 'excessive' after a Moody's downgrade, GSI posted a Q3 net loss, and Nike shares dropped as analysts predicted the effects of global slowdown.
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Cybex's Q3 profit plummets

Despite a bump in sales, Cybex International's (Nasdaq: CYBI) third-quarter profit took a deep plunge.

For the quarter ended Sept. 27, net income was about $300,000, or $0.02 per diluted share, compared to $4.6 million, or $0.26 per diluted share, reported for the same period in 2007.

Sales for the 2008 quarter were $35.8 million compared to 2007's $32.6 million, for an increase of about 10 percent. Of those, about $19 million were of cardiovascular equipment, which was up about 8 percent, driven mostly by treadmill sales. Arc Trainer sales were down about 1 percent. Strength equipment sales were up about 13 percent over the year-ago quarter to about $13.6 million, with selectorized equipment, particularly the new VH1 series, leading that charge.

"We don't have a gloomy sense of things, but we can't give any idea of future revenue generation," CEO John Aglialoro told investors and media on a quarterly earnings call Oct. 21. "The consumer market for fitness products has been extremely soft. We're entering it cautiously.

"As that market becomes better, we have products we are very proud of," he added.

He noted that the home version of the Arc Trainer is now shipping.

During the third quarter of 2007, Cybex said it reevaluated the need for the remaining deferred tax valuation allowance originally established in 2002 and substantially reduced the reserve in September 2007. The reduction of the tax valuation allowance increased net income by $5.2 million, or $0.29 per diluted share, for the quarter and nine months ended Sept. 29, 2007.

The 2007 results also included third-quarter pre-tax charges of approximately $1.6 million, or $0.05 per diluted share, for the relocation of the company's Owatonna, Minn., facility, the estimated cost to repair certain treadmills built prior to 2002, and asset write-downs.

"Given the current global economic environment, we are pleased with the Q3 results. While general economic conditions make short-term results difficult to predict, we maintain a positive focus over the longer term," said John Aglialoro in a statement.

The company said it expects to ship Next Generation Arcs, an improved commercial bike, and expanded video display products by the end of the fourth quarter. Aglialoro said he expected that "connectivity" in screens, monitors and headphones is where the market will now turn.

"Let's hope this uncertain storm clears," he said, "but we're ready for a fight."



RBC analyst calls Brunswick sell-off 'excessive' after Moody's downgrade


An analyst said investors overreacted by selling off shares of Brunswick Corp. (NYSE: BC) after Moody's Investors Service gave the manufacturer a junk rating on debt. In addition to its rec boat portfolio, Brunswick is the parent company of Life Fitness, Parabody and Hammer Strength.

RBC Capital Markets analyst Edward Aaron said Moody's downgrade, which sent the stock down 22 percent -- hitting a new 25-year low -- on Oct. 20, would have minimal impact on Brunswick's financials.

"Brunswick faces strong headwinds that will likely result in further downward estimate revisions, elimination of its dividend and potentially the impairment of certain assets," Aaron wrote in a research note. "While it might be a long road to recovery, we believe solvency concerns ... seem excessive."

Aaron said the ratings cut means Brunswick will see a slight interest rate increase on its $250 million in senior notes, which should equate to a less than $0.02 per-share impact.

Moody's lowered its ratings on Brunswick's ratings for unsecured notes and commercial paper, along with its corporate family and probability of default ratings, citing "turmoil in the financial markets" that would slow discretionary consumer spending and put pressure on Brunswick's dealer networks and liquidity.

Aaron's note to investors added that Brunswick "will likely" violate a leverage ratio covenant on a revolving credit facility during the quarter, but said he believes the company will resolve the issue by reducing the size of the revolver, accepting higher interest rates and pledging certain assets.

GSI posts Q3 net loss

While its net revenue was up 36 percent, GSI Commerce (Nasdaq: GSIC) posted a multi-million dollar net loss for the third quarter.

For the quarter ended Sept. 27, net revenues were $186.8 million, up from $137.3 million.

Net loss was $12.8 million, or $0.27 per share, compared to $6.1 million, or $0.13 per share.

Loss from operations was $16.5 million compared to $11.5 million.

Looking ahead, GSI expects 2008 net revenues to be in a range of $950 million to $985 million. Loss from operations is expected to be in a range of $6.5 million to $9.5 million.

For the fourth quarter, it anticipates net revenues to be in a range of $375 million to $410 million. Income from operations is expected to be in a range of $42 million to $45 million.



Nike shares drop as analysts predict effects of global slowdown


Shares of Nike (NYSE: NKE) dropped Oct. 22 as analysts predicted the economic slowdown would spread globally and hurt the company's results. While Nike has been buoyed by its strength in foreign markets, several major worldwide indexes fell Wednesday as many corporations released negative earnings reports.

The company closed the day's trading at $52.50, down $4.62, or 8.09 percent, after hitting a day's low of $51.

Though Nike is the dominant brand in its industry and has a strong balance sheet, the analyst said macro-economic concerns overshadow the business. "We are concerned that the global growth engine of the company is slowing," Sterne Agee analyst Sam Poser wrote in a research note.

Because the majority of the company's incremental sales were in foreign markets, Poser said recent deterioration of global economic environments could hurt growth prospects going forward. He said the growth and earnings expectations for the company are too optimistic and lowered his recommendation to "Sell" from "Hold."

Stifel, Nicolaus & Co. analyst Thomas D. Shaw echoed similar concerns, as he initiated coverage of Nike on Wednesday with a "Hold" rating. Shaw wrote in a note that he expects Nike to show "greater-than-expected top-line deceleration over the next couple of quarters given increasing global pressures on consumer spending in both mature markets and emerging markets."

The analyst also said Nike shares have yet to reflect the reality of a slowing global economy although its strengths such as reach, brand and increasing cash flow are reflected.



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