Cybex Confidently Re-enters Consumer Market

For the last several years Cybex International (AMEX: CYB) has shown relatively stable 10-15% annual revenue growth. In our view, similar revenue growth is anticipated in FY06 and FY07, which may prove conservative if the consumer initiative is stronger than estimated.

Cybex develops, manufactures and market strength and cardiovascular fitness equipment products for the commercial and consumer markets. As domestic fitness club memberships increased at a compounded 7.9% rate for the ten-year period ended 2004, Cybex revenues increased 10.7%, 14.3% and 10.8% in 2003, 2004 and 2005, respectively. (Revenue for 2003, 2004 and 2005 was $90.5M, $103.4M and $114.6M respectively)

The majority of Cybex sales occur within the heavy use commercial market where the company’s position is robust and improving. Typical customers in this market include fitness clubs such as Life Time Fitness, Gold’s Gym, 24-Hour Fitness, etc., community centers and YMCAs. Cybex also sells product to the light commercial market, which includes small fitness facilities, hotels, resorts, spas, corporate fitness centers and schools.

In our view, the compelling aspect of the Cybex growth story is the company's plans to re-enter the consumer market, which generally attracts 4x the revenue of the commercial market. The company intends to remain at the premium-end of the home gym market with the lead product a consumer version of its successful Arc Trainer, which is scheduled to launch in Q4 and will be supported by a consumer-specific branding campaign.

Other growth drivers in the fitness industry are: growing consumer, government and media attention to the benefits associated with fitness; an aging population that is maintaining a more active lifestyle; an awareness of the benefits of combined strength and cardiovascular training; rising healthcare costs causing companies to focus on preventative practices such as corporate fitness programs; and the expansion of the market for quality fitness equipment for the home.

Importantly, the company recently completed a follow-up stock offering raising $10 million that enabled the company to eliminate its debt and strengthen the balance sheet. With this enhanced financial flexibility, the company has begun building a new manufacturing facility in Minnesota that doubles manufacturing capacity. We believe Cybex’s success in delivering growth above that of its end markets lies in its ability to provide high quality and innovative products that its customers perceive as “must have” in order to satisfy the demands of their fitness club members.

Cybex International Inc. (AMEX: CYB)
Sector: Fitness Equipment
Market Cap (mm): $126.6
Price: $7.37
52 Wk High: $7.71
52 Wk Low: $3.13
Avg. Trading Vol. - 3 Mo (mm): 0.44
P/E: 7.6x

Cybex Competitors: Brunswick Corporation, Amer Sports, Life Fitness, Precor, Nautilus

Cybex 1-yr. chart