On the heels of a strong first-quarter earnings report, Precor-parent Amer Sports announced the acquisition of Salomon, a leading action sports and outdoor adventure portfolio of brands, achieving the Helsinki, Finland-based company's long-stated goal to be the No. 1 sports equipment company in the world.
On April 28, Amer released its first-quarter report, showing a rise in sales nearly across the board, including its fitness division lead by Precor where net sales in the quarter grew by 12 percent in local currencies over the same quarter a year ago. Overall for the company, net sales increased 2 percent to euro 277.8 million (USD $364.6 million) from euro 271.6 million (USD $339.3 million) in the year-ago period. In local currencies, net sales grew company-wide by 5 percent.
Acquisition leads to No. 1 spot
Then, two business days later, on May 2, Amer announced it had acquired Salomon, a family of brands that includes Mavic (bike), Bonfire (snowboard), Arc'Teryx (outdoor adventure apparel), and ClichÃ© (skateboard), creating an Amer company category it called "freedom action sports." That category joins the fitness, winter sports, team sports, racquet sports and golf divisions.
Posting 2004 pro forma net sales after the acquisition of euro 1.688 billion, Amer has now becomeÂ the No. 1 sports equipment company in the world. Next in order are Shimano, Acushnet, Icon Health & Fitness (with its sales of just under euro 1 billion), K2, Life Fitness-parent Brunswick, Nike, Callaway, Mizuno, Rossignol, Nautilus and Head. The expanded Amer company will have 6,800 employees worldwide.
In a one-on-one chat with SNEWSÂ® at the winter ispo show in February, Amer CEO Roger Talermo had reiterated the goal of becomingÂ the No.1 sports equipment company in the world, but stressed equipment, saying the company didn't have a lot of interest in apparel unless it was highly technical and technically oriented.
"Equipment is our priority," Talermo said at that time. "With technology, you can add value for the user."
Also at that time, Talermo said he didn't expect to make another acquisition until the 2006 fiscal year and that he wasn't fixed on any particular year to become No. 1, but rather was fixed on the goal itself. Apparently, that changed, as we see with this move with Salomon, acquired from adidas-Salomon AG.
Talermo said in a webcast press conference on May 2 that its portfolio of brands can now also help each other because of technicalÂ synergies, material acquisitions, production, and product R&D. That could mean lowered costs and lower prices across the board, he said.
Amer has grown strongly in about the last three years, since it went on the acquisition warpath and also dumped its interest in the tobacco market in Europe last year. It acquired Precor in October 2002, and both FPI's Icarian brand and the ClubCom and Cardio Theater brands in January 2004. In 2004, it also changed its name to Amer Sports Corporation, continuing to trade on the Helsinki stock exchange. Fitness will be about 12 percent of the company's business.
Earnings show positive
For the quarter ended March 26, the company's EBIT totaled euro 21.5 million (USD $28.2 million) versus euro 27.4 million (USD $34.2 million) in 2004, due primarily to investments made in sales and marketing, especially in the fitness equipment and winter sports divisions. Net earnings for continuing operations were down 15 percent to euro 14.2 million, compared to euro 16.7 million in the year-ago period. Earnings per share were 0.20 versus 0.24 in Q1 last year.
Net sales for the fitness equipment division increased 7 percent in euro terms to euro 59.5 million (USD $77.4 million) from euro 55.1 million (USD $68.8 million) in 2004, or a 12 percent increase in local currency terms. The fastest growing product categories were treadmills and stationary cycles. Sales of audio/video entertainment, hardware and systems have all developed positively, the company said.
The fitness equipment division is investing heavily in developing its business outside the U.S. market, the quarterly report stated. During the quarter, sales outside the Americas grew by 14 percent.
Stated in local currencies, the fitness equipment division's EBIT declined by 36 percent due to investment in sales and marketing. In addition, the company hasn't been able to pass on increased steel and freight costs in its selling prices. The profitability of the businesses that were integrated last year has not as yet reached its objective.
The fitness sector also continued to grow in North America. Growth was seen in sales of fitness equipment to fitness clubs and for home use. The division's position as a major international full-line supplier of fitness equipment was bolstered by expanding its product range into commercial strength, entertainment systems and services, the company said.
For the year, Amer Sports comparable net sales in local currencies are expected to grow by 3 percent to 5 percent compared with 2004. Earnings per share for 2005 are expected to be 0.90 to 1.05.
Amer Sports is financing the acquisition of Annecy, France-based Salomon with debt, which is expected to bring its gearing ratio to approximately 110 percent at the company's financial year end, Dec. 31 2005. Amer also said it expected the acquisition will have a slightly positive impact on earnings per share in the current fiscal year as well as in 2006. It is expected that the transaction will be completed by the end of September 2005.
(Conversion of euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of April 28.)
SNEWSÂ® View: Being part of such a large enterprise that is purely focused on sporting goods could be huge news to Precor. Already since it's acquisition by Amer in late 2002, the company has benefited from the global presence, technology knowledge and materials available via Amer. As Amer takes on the No. 1 position worldwide, Precor can only see more doors opening, adding more exposure and helping to develop product and open doors internationally. Talermo has often said that the fitness division is a worthwhile one. Although the company won't likely make another move as large as this Salomon one anytime soon, it could in the next year look at other companies to add to its fitness division. Consider this: Amer now owns several companies involved in winter sports (Atomic, for example), including ones that actually compete in some way with each other. It is said Amer may now own 36 percent of the entire winter sports market worldwide. Talermo and his team likely wouldn't hesitate -- if the company seemed like a good fit -- to acquire another fitness equipment company, even a Precor competitor that perhaps had a slightly different orientation. Dominating today's global economy with a widely diversified portfolio of brands can help keep a company in a leading position.