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 Breaking Headlines

K2 Reduces FY Earnings Forecast, Blames Paintball

OCTOBER 11, 2005 -- K2 now forecasts GAAP diluted EPS for FY05 will be in the range of 66¢ to 68¢, as compared to its previous forecast of 77¢ to 81¢, and adjusted diluted EPS in the range of 75¢ to 77¢, as compared to its previous forecast of 87¢ to 91¢. Analysts had been expecting earnings of 89¢ a share on sales of $1.33 billion. For 3Q05, K2 forecasts GAAP diluted EPS of approximately 32¢, and 4Q05, K2 forecasts GAAP diluted EPS in the range of 23¢ to 25¢.

Richard Heckmann, COB/CEO, said, "We continue to face a very difficult outlook in the paintball sector. Although softness in paintball has been a concern for us throughout the year as retailers have been reducing inventories, we were hopeful that this would result in a rebound in the later half of the year, which is traditionally paintball's high season.

"In the third and fourth quarters of '04, our operating income from paintball was in excess of $8.5 million, which is approximately 10¢ per share, but in our updated forecast for '05, we are now expecting little if any contribution from this business line. The majority of paintball products are sold through the mass distribution channels, and these consumers have been particularly hard hit by rising energy costs. We are restructuring the costs in our paintball business, which should allow a return to profitability in '06 assuming that paintball sales stabilize at current levels.

"On a positive note, despite the downturn in paintball, our revised forecast for the third and fourth quarters of '05 is well above actual results in the same period in '04, demonstrating the continued strength of our other core businesses including winter products, apparel and footwear, team sports and marine and outdoor, which continue to perform in accordance with our plan."

Piper Jaffray quickly downgraded the company to market perform from outperform with a $9 price target due to the reduced estimates, slow growth and limited confidence in a turnaround. Analysts at Wedbush Morgan maintained a buy rating on K2, but reduced their estimates for the company. The 12-month target price has been reduced from $18 to $13. The EPS estimates for '05 and '06 have been reduced from 91¢ to 75¢ and from $1.04 to $0.88, respectively. Caris & Co. downgraded K2 to average from above average.





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Categories
Sporting goods industry
Earnings estimates
Apparel manufacturing
Apparel

Companies
Piper Jaffray Inc.
Wedbush Morgan
Caris & Co.

Concepts
core businesses
Earnings Forecast
buy rating
mass distribution channels
energy costs

People
Richard Heckmann





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