Mountain bike and motor sports suspension provider Fox Shox generated revenues of $43.3 million in the third quarter ended Sept. 30, up 30.8% from the prior year period, according its parent company, Compass Diversified Holdings Inc.
The increase was attributed to sales growth in Fox's Bicycle and Power Sports division, as well as growth in aftermarket sales and service revenues. Sales are growing in Europe and the United States, where a growing number of OEMs are specing Fox components.
“No doubt that there are some people out there who would have otherwise gotten a high-end mountain bike that are going to slow that down or not upgrade,” said Joe Massoud, CEO of Compass Diversified. “But what we're seeing in terms of actual real-time data is that the slowdown is not as significant as you would think in other luxury goods, which is consistent with our view on enthusiasts' products. At one point, we owned the largest BB gun manufacturer in the world and had a very similar dynamic in terms of enthusiasts do what enthusiasts do.”
Regardless of the economy, the shift from road biking to mountain biking, even in small increments, has and will continue to provide a huge amount of growth in mountain biking, Massoud said. “There's also no doubt that if you look at the largest four or five OEM manufacturers, that at their high end, we are spec'ed on a higher portion of those bicycles than we have been historically,” he added.
Income from operations more than doubled to $6.4 million during the quarter from $2.9 million for the quarter ended September 30, 2007. For the nine months ended September 30, 2008, revenue was under $101.2 million, compared to $75.7 million in the prior-year period. For the first nine months of the year, income from operations was $9.4 million, compared to $2.7 million for the prior-year period. Massoud said he sees an opportunity to enhance Fox Shoxs margin by 2 to 3 percentage points in 2009 as a decline in aluminum prices and other inputs work their way up the supply chain and operational initiatives begin to yield savings.
Operationally, Fox Shox is driving down components costs by soliciting bids from second and third suppliers. This has resulted in both better pricing and, in some instances, more timely deliveries of parts. “You might be able to get improvements in service; might even get some improvement in the product; some improvement in the coordination and design,” Massoud said.
Fox Shox has generated $12 million in free cash flow so far this year and could hit $18 million for the full year, he said.
In 2009, Fox Shox should begin to see growth from a number of opportunities outside its core mountain bike sector. For instance, it is partnering with Ford to produce suspension for the Ford F-150 Raptor, a high-performance off-road vehicle expected to be introduced in 2010 or 2011.
“That's going to be, in addition to being good promotion, a reasonably, hopefully decent number of units for us,” said Massoud.
“So there's a lot of positive things going on at Fox, none of which is to deny the notion that there are certainly people who would have otherwise upgraded their mountain bikes or acquired new high end mountain bikes with this impact, with this economy impact,” Massoud said. “That must and can only be a fact. But we think the momentum in the business clearly points to charging right through that dynamic.”
“So there's a lot of positive things going on at Fox, none of which is to deny the notion that there are certainly people who would have otherwise upgraded their mountain bikes or acquired new high end mountain bikes with this impact, with this economy impact,” Massoud said. “That must and can only be a fact. But we think the momentum in the business clearly points to charging right through that dynamic.”
