Fitness financials: Shares sink as Brunswick cuts '06 guidance, plus Bally, Town Sports
Fitness financials: Brunswick cuts '06 guidance, shares drop. Pardus increases Bally stake shortly before poison pill expires. Town Sports completes partial redemption of outstanding debt securities
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Brunswick cuts ’06 guidance, shares drop
Life Fitness’ parent Brunswick Corp. (NYSE: BC) saw its shares tumble to a three-year low after it cut its full-year earnings forecast in the wake of soft demand for its marine products.
Brunswick lowered its full-year guidance for earnings from continuing operations by about 20 percent to a range of $2.40 to $2.55 per share, far below the $3.06 per share estimate of analysts. The reduced earnings would represent a drop of 19 percent to 23 percent from last year’s operating earnings of $3.13 per share.
Shares of Brunswick sank as low as $28.90 during trading on the New York Stock Exchange on July 12 before closing at $29.55, down $2.28, or 7.2 percent.
The company also said it expects second-quarter earnings within range of its earlier guidance but slightly below analyst forecasts due to some weakness in the quarter. It expects quarterly earnings at $0.93 to $0.94 per share, compared with previous guidance of $0.90 to $0.97 per share.
On July 13, both Citigroup and AG Edwards downgraded Brunswick from “buy” to “hold.” Citigroup said it doesn’t see many major catalysts to move the share price for the next 12 months. RBC Capital Markets maintained a “sector perform” rating, but lowered its price target to $33 from $37, while Credit Suisse reduced its target price to $33 per share from $42 and maintained a “neutral” rating on shares.
Brunswick is scheduled to report second-quarter results July 27.
Pardus increases Bally stake shortly before poison pill expires
Shortly before the expiration of Bally Total Fitness’ (NYSE: BFT) shareholder-rights plan, hedge fund Pardus Capital Management purchased more stock, raising its stake in the company to 14.5 percent.
Pardus is Bally’s largest shareholder and had said in October that it was interested in increasing its stake to more than 15 percent. The expiration of Bally’s interim anti-takeover tool, which would be triggered by any shareholder or group of shareholders accumulating more than 15 percent of the company’s stock, paves the way for such an increase.
The recent purchases of Bally stock, which came after a two-month decline in the company’s stock price, were the first by Pardus since February, shortly after its three candidates were elected to Bally’s nine-member board, in effect ending a months-long proxy fight.
Ben Silverman, research director at InsiderScore.com, told the Wall Street Journal in a July 12 article that the falling stock price provided a good incentive for Pardus to resume its purchase of Bally shares while continuing to exert pressure on management to unlock shareholder value by pursuing a sale of the company.
“I think Pardus is not done with Bally,” Silverman was quoted in WSJ. “The buying by Pardus signals that they must be gearing up for another round of fight. It may not be in the immediate future, but down the line.”
Bally’s shareholder-rights plan expired on July 15.
Town Sports completes partial redemption of outstanding debt securities
Town Sports International (Nasdaq: CLUB) said it has completed redemption of 35% of the original aggregate principal amount of its outstanding 11% Senior Discount Notes due 2014. The notes had an accreted value at the redemption date of $56.6 million. Following the redemption, the aggregate principal amount of the notes outstanding was $105.1 million, which it said represents the accreted value of such notes on the redemption date.
In other company news: On July 12, coverage on Town Sports was initiated by both Piper Jaffray and William Blair. Each brokerage gave the company an “outperform” rating.
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