Fitness financials: Cybex reports increase in 3Q sales, plus Amer Group, Bally, Reebok, Sears, economic indicators drop

Cybex continues growth pattern in 3Q, all sales up in 2004
Cybex International (AMEX: CYB) kept up its recent trend in sales and income gains in the third quarter of 2004 that ended Sept. 25, 2004, reporting net sales of $24.9 million compared to $21.9 million for the comparable 2003 quarter. That’s an increase of 14 percent. Net income for the quarter was $410,000, compared to a net loss for the comparable previous year’s quarter of $953,000.

“The third quarter is behind us, and it appears the momentum has continued,” said Chairman and CEO John Aglialoro in an earnings call on Oct. 19.

Gross profit was 34.6 percent of net sales, compared to 32 percent for the prior year’s quarter, and 36.6 percent for the first nine months of 2004. Net interest expense was just over $1 million, slightly up over the 2003 quarter of $956,000, partly due to the refinancing in July of the company’s term loan facility. For the nine months ended Sept. 25, net interest expense was $2.9 million. Net income before taxes was $439,000 compared to a loss in the 2003 quarter of $947,000.

The company reported that in the third quarter sales of the Arc Trainer were up 55 percent and total cardiovascular equipment sales were up 26.5 percent. Total sales of strength equipment were up 4 percent. Sales also showed overall increases for the first nine months of 2004, said CFO Art Hicks, during the call. The Arc Trainer was up 42 percent and total sales of all cardiovascular equipment were up 25 percent. Sales of strength equipment were up 9 percent. Overall sales of all equipment were up 15.1 percent.

Aglialoro told analysts and others on the call that the company is looking to update not only some of its manufacturing equipment at its plants but also its information systems. Still troubling, he said, were the increases in the price of steel, to which he said, “We won’t be in denial.

“This is a pass-on cost, nothing we’re putting on extra,” Aglialoro said about price adjustments to protect selling margins.

He also said the company, which had to shift away from consumer business to “stabilize” the company, is now looking to get back into the consumer equipment arena, perhaps by the second half of the second quarter of 2005. He called that timing “a target,” as the company considers equipment needed for the market as well as how to reach it.

The day of the announcement, Cybex closed at 4.38 on a volume of 6,000. On Oct. 20, the company closed at 4.15, or down 5.25 percent, on a volume of 24,200. That compares to an average 10-day volume of 19,700, and a 52 week high of 4.75 and a low of 1.10. The company’s stock price has been climbing slowly since it was about 3.50 at the end of October.

Silchester now owns 3.6 million shares of Amer Group shares
Pursuant the Finnish Securities Market Act (Section 2:9), Precor-parent Amer Group Plc of Finland has been notified that institutional investors and funds that have given full discretion over their investments to Silchester International Investors Limited now own 3,655,052 Amer Group Plc shares, representing 15.35 percent of the company’s share capital and voting rights. Amer Group’s capital consists of 23,806,620 shares in issue.

Bally reveals details of new loan
Bally Total Fitness (NYSE: BFT) has announced the details of its new five-year, $175 million loan facility. Interest will be determined by the London interbank offered rate, plus 4.75 percent. Quarterly payments of $437,500 are scheduled to begin March 31, 2005, with a final installment of $166,687,500 due on Oct. 14, 2009. Bally used $100 million to repay its accounts receivable securitization facility. The remainder of the money, $75 million, will be used for general corporate purposes. The new combined $275 million term loan and revolving credit facility voids the Nov. 1, 2004, deadline Bally had for providing lenders with financial statements filed with the SEC.

Reebok’s third quarter beats analysts’ predictions
Reebok International (NYSE: RBK) reported a 31 percent increase in third-quarter earnings and blew away analysts’ expectations. Its third-quarter net income was $81.8 million, or $1.36 a share, for the period ended Sept. 30, 2004. That’s up from the prior year’s $62.7 million, or 96 cents a share. Analysts had forecast, on average, third-quarter earnings of $1.18 a share. On a constant-dollar basis, third-quarter sales increased 9 percent from the prior year.

It also reported that its gross margin for the third quarter of 2004 was 40.4 percent, an improvement of 80 basis points when compared with the gross margin of 39.6 percent in 2003. “For the quarter, approximately one-third of the margin improvement came from the U.S. with the balance of the improvement from our international business. Primarily all of the international margin improvement resulted from the strengthening exchange rates in many of our international businesses,” Chairman and CEO Paul Fireman said in a statement. Worldwide inventories as of Sept. 30 totaled $505 million, compared to $411 million a year ago. Accounts receivable were $814 million compared to $687 million a year ago.

Reebok also announced its intention to conduct an exchange offer for its outstanding $350 million convertible debentures. They will retain many of the same terms as the existing debentures but will have a net cash settlement feature. The purpose of the exchange offer is to address changing accounting principles and the impact they may have on future reported earnings per share.

Sears pummeled in 3Q
The third quarter of Sears, Roebuck & Co. (NYSE: S) was dramatically down as it lost $61 million, or 29 cents a share, in the three months to Sept. 30, 2004, compared with earnings of $147 million, or 52 cents a share, last year. Analysts were forecasting earnings of 1 cent a share in the most recent quarter. Sales fell 17 percent to $8.30 billion, about $20 million shy of forecasts. Last year included the results of the domestic Credit and Financial Products and National Tire & Battery, which have since been sold. The company’s U.S. sales totaled $7.1 billion, down from $7.4 billion in the same quarter last year, while comparable store sales decreased 4 percent. Gross margins shrank to 25.9 percent from 26.7 percent, and selling costs fell to $1.7 billion from $2 billion. Based the sales and margin performance over the past two quarters, coupled with a more cautious holiday outlook, Sears has adopted a more conservative outlook for the fourth quarter.

Fourth consecutive month that the leading economic indicators drop
The U.S. index of leading economic indicators fell 0.1 percent in September, the Conference Board reported Oct. 21. This is the fourth straight monthly decline, the longest consecutive month decline since mid-2002. The dip was less than the consensus forecast of Wall Street economists, who had predicted a 0.2 percent fall. Economists believe that this trend of consecutive declines indicates that the U.S. economy is losing steam as it heads into 2005.  

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