European Nationalist Controversy Makes Cannondale a Winner - TheStreet

European Nationalist Controversy Makes Cannondale a Winner

Author:
Publish date:

By Cory Johnson
Staff Reporter

Normandy is just not the place you'd look for a celebration of American business, even on Fourth of July weekend. But the Stars and Stripes have been flying, quite literally, as the early stages of the

Tour de France race through the north of France -- and

Cannondale

(BIKE)

sees substantial profit in the celebration. Indeed, the Georgetown, Conn.-based bicycle manufacturer finds itself in the center of the greatest debate in Europe's second most popular sport.

From the cafTs of Paris to the espresso bars of Rome, cycling enthusiasts have been arguing about the propriety of Italy's greatest cycling team -- now known as the

Saeco/Cannondale

team (Saeco is the maker of Italian cappuccino machines) -- riding bikes made American.

"The Italians are just so passionate about their cycling and their bikes," says Brian Jew of

Velo News

. "So it was almost sacrilege to ride American bikes. But then they started winning and that really fired up the debate." Indeed, Saeco/Cannondale didn't just start winning, they won six stages of the 22-day

Giro d'Italia

, cycling's second-biggest event. And on the race's final day, June 8, Saeco/Cannondale's Ivan Gotti emerged as the overall champion, with the team's Mario "SuperMario" Cipollini winning the final stage. The July 1 issue of

Bicycle Retailer

wrote that the controversial win "generated an estimated $30 million of race publicity and an 80% jump in European road bike sales."

"The Tour of Italy had not been won by an Italian since 1991," says Dan Alloway, Cannondale's vice president of sales and European operations. "So no one could believe it was done on an American bicycle. There were front-page accusations in the Italian newspapers suggesting that the bike wasn't really a Cannondale. That's not true, but the Europeans labeled them traitors to the mother country."

The Saeco/Cannondale team took these charges personally. So in the first stage of the Tour de France last Saturday, Cipollini donned skin-tight red, white and blue cycling shorts -- and won. The shorts were a violation of the uniform code, earning a fine of about $150. Nonetheless Cipollini's victory, and shorts, were the talk of Europe. "Our bicycle sponsor, Cannondale, is an American company, and we thought it was a great idea to grab the attention of the American public," he told the press afterward. "It's the maximum for me -- extraordinary."

Incredibly, he won the next day as well, racing ahead at the finish line to make front-page news across Europe. Finishing third in Wednesday's fourth stage, Cipollini has maintained the overall lead and the coveted yellow jersey. "This certainly has had a major impact in our forecasts," says Alloway. "I can't discuss sales figures because we're in a quiet period, but let's put it this way -- the warehouse is empty. This is as high-profile as you can get. "

"He's right," says

Hambrecht & Quist

analyst Jean-Michel Valette. Valette is particularly close to the company, as Hambrecht & Quist did the secondary offering for Cannondale. "It's like having the camera on your product throughout the Super Bowl. This is the kind of thing that can boost Cannondale's currently-small European share significantly. International is 40 percent of their sales, but we expect that to go to about 60 percent in the next few years and these wins could accelerate that. The visibility from the Giro and the Tour de France could accelerate that. All of this should be good for the stock, but the price hasn't reflected that yet."

One reason might be a negative June 19

Wall Street Journal

story about rainy summer weather. Since that story, Cannondale stock is down 12.5%. But Hambrecht & Quist is maintaining its buy rating on the stock and expects the tremendous success of the Saeco/Cannondale team to continue to boost Cannondale sales.

In the third quarter ended March 31, Cannondale reported revenue of $48.2 million, up from $45.1 million a year earlier. Net income rose to $5.6 million, or 62 cents per share, from $4.2 million, or 48 cents a share, a year ago. The

First Call

consensus for fourth-quarter earnings is 42 cents a share. Cannondale expects to report after the close on Aug. 12 or 13.

On July 27, when the Tour de France's final stage winds from

Disneyland Paris

to the Champs-ElysTes, few cycling experts expect Cipollini to be wearing the yellow jersey. His big, muscular frame, an asset in the flat sprints that dominate the early stages of the race, will slow him down when the Tour reaches the Alps and probably drop him from contention. But Cannondale's red, white and blue victory in Europe may give shareholders plenty to celebrate for a long time to come.

Related Story

Cannondale Gets Rolling Again

(1/27)

. Someone should tell Wall Street that Cannondale does not make your father's bicycle.