Posted By: Judy Smith
By Ulf LaessingThu Nov 9, 7:44 AM ET
FRANKFURT (Reuters) - Sporting goods maker Adidas cut its
2007 profit outlook as it pours extra cash into its U.S.
acquisition Reebok, triggering a sharp fall in its shares that
wiped off a tenth of its market value on Thursday.
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A 16 percent fall in orders at Reebok overshadowed an
otherwise solid third quarter at Adidas, the world's
second-largest sports goods firm after U.S. rival Nike.
Brokers rushed to cut their recommendations on the stock,
which is now this year's worst performer on Germany's DAX of
top 30 shares.
"More work is needed at Reebok," Chief Executive Herbert
Hainer told reporters in a conference call.
Adidas said net income growth would approach 15 percent in
2007 instead of a previously forecast 20 percent, blaming lower
profit expectations at Reebok and investment in new products
and advertising to beef up flagging sales.
Adidas bought Reebok for $3.8 billion last year to take on
Nike in its home turf, but it has yet to convince investors
that the acquisition will pay off.
Adidas said Reebok orders were unlikely to start rising
before the second half of 2007, even though the U.S. firm would
post profits this and next year.
"The order decline is disappointing. We'll probably have to
wait until the second half of 2007 to see noticeable
improvements at Reebok," said fund manger Joerg Dehning at
Pioneer Investments, Adidas' second-biggest investor according
to Reuters data.
Merck Finck analyst Nils Lesser, who cut the stock to hold
from buy, was skeptical: "It will take longer to put Reebok on
track."
SHARES PLUNGE
Adidas shares fell 11 percent in early trade and were down
8.4 percent at 37.56 euros at 1229 GMT, wiping out gains made
in October on upbeat result expectations. The trading volume
was 9 times above the 90-day average.
Dehning said he would not use the fall to buy into the
stock. "We'll keep Adidas shares for the time being. I don't
see any reason to stock up despite the fall," he said.
The Reebok news soured euphoria triggered by the soccer
World Cup in Germany that helped Adidas's sales surge in the
second quarter, and lifted the stock to above 43 euros in May.
Adidas bought Reebok to complement its strength in
classical sports wear such as soccer boots and its strong
position in Europe with Reebok's focus on the U.S. market and
lifestyle fashion, a segment tapped successfully by rival Puma
But investors have been skeptical from the start about the
Reebok deal, questioning Adidas's ability to ensure a smooth
integration of a company on the other side of the Atlantic.
Adidas has launched a revamp for Reebok's product line and
sales strategy and said it stuck to its goal of achieving
annual savings of 175 million euros from the takeover from
2009.
But HVB analysts said no improvement at Reebok was in
sight, cutting Adidas shares to "neutral" from "outperform" and
lowering their price target to 39 euros from 45.50 euros.
The problems at Reebok overshadowed a solid third quarter,
with Adidas' net income rising 13 percent to 244 million euros,
above the average forecast of 231 million in a Reuters poll.
Quarterly sales rose by 53 percent to 2.949 billion euros,
driven by growth in Europe, North America and Asia, above the
average analyst forecast of 2.877 billion.
(additional reporting by Eva Kuehnen and Ralf Banser)
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