Callaway Golf Company Announces Record First Half 2008 Sales and Earnings
Callaway Golf Company (NYSE:ELY) today announced its financial results for the second quarter and first half ended June 30, 2008, including record sales and earnings for the first half of 2008.
Highlights for the second quarter include:
- Net sales of $366 million, a decrease of 4% versus 2007´s record second quarter sales of $380 million.
- Fully diluted earnings per share of $0.58 (on 63.9 million shares outstanding), an increase of approximately 9% compared to $0.53 (on 69.3 million shares outstanding) in 2007. Fully diluted earnings per share for the second quarter include after-tax charges for gross margin improvement initiatives of $0.05 per share in 2008 and $0.02 per share in 2007.
- Gross profit as a percentage of net sales for the second quarter of 2008 increased to 46.7% from 46.1% in the second quarter of 2007. Excluding the impact of the gross margin initiatives charges, gross profit percentages for the second quarter of 2008 increased 140 basis points to 48.0% versus 46.6% in the second quarter of 2007.
- Operating expenses for the second quarter of 2008 were $110.8 million (or 30% of net sales) compared to $113.0 million (or 30% of net sales) in 2007.
- The Company repurchased 1.5 million shares of stock for $20 million for the quarter at an average price of $13.59 per share.
Highlights for the first six months include:
- Record net sales of $732.5 million, an increase of 2% versus last year´s record of $714.6 million.
- Record fully diluted earnings per share of $1.19 (on 64.4 million shares outstanding), an increase of 18% as compared to $1.01 (on 68.8 million shares outstanding) in 2007. Fully diluted earnings per share for the period include after-tax charges for gross margin improvement initiatives of $0.06 per share in 2008 and $0.03 per share in 2007.
- Gross profit for 2008 was $346.6 million (or 47.3% of net sales) compared to $335.8 million (or 47.0% of net sales) for 2007. Excluding the impact of the gross margin initiatives charges, pro forma gross profit percentages for 2008 would have been 48.1% compared to 47.5% in 2007.
- Operating expenses for 2008 were $221.4 million (or 30% of net sales), compared to $217.9 million (or 30% of net sales) for 2007.
"We´ve reached the halfway point of 2008 and despite the challenging economic conditions in the United States we have delivered record sales and earnings over a strong 2007," commented George Fellows, President and CEO. "These results speak to the strength of our brands and our international business, which has delivered ahead of expectations and more than offset the softness we have experienced in our U.S. business."
"We continue to make excellent progress on our gross margin improvement initiatives and are on track to achieve our original two year commitment of $50 to $60 million in savings," continued Mr. Fellows. "While product mix and to a lesser extent commodity costs will work against us this year, we currently estimate our full year gross margins will still improve at least 100 basis points compared to 2007. In addition, we are on track to achieve our inventory reduction initiatives announced earlier this year."
Business Outlook
The Company reiterates its full year guidance of $1.145 to $1.165 billion in net sales and pro forma fully diluted earnings per share of $1.08 to $1.18 per share. The Company estimates that its full year net sales will be toward the higher end of the guidance range as it anticipates that it will continue to benefit from foreign currency exchange rates and intends to release some new products on a limited basis during the fourth quarter. Pro forma full year diluted earnings per share are estimated to increase by more than 20% compared to 2007 and to be at the lower end of the guidance range, due to the adverse effect of product mix and commodity costs on 2008 gross margins, as well as additional marketing investment for the new product introductions. The pro forma earnings guidance for 2008 excludes charges of approximately $0.11 per share for the Company´s gross margin initiatives. The Company had previously estimated that the charges for the gross margin initiatives would be approximately $0.08 per share for 2008 but the Company has accelerated the commencement of some of the gross margin initiatives that previously had been planned to start in 2009. As a result of the second quarter share repurchases, the pro forma earnings per share estimates are now based upon an estimated 64.5 million shares.
The Company will be holding a conference call at 2:00 p.m. PDT today. The call will be broadcast live over the Internet and can be accessed at www.callawaygolf.com. To listen to the call, please go to the website at least 15 minutes before the call to register and for instructions on how to access the broadcast. A replay of the conference call will be available approximately two hours after the call ends, and will remain available through 9:00 p.m. PDT on Wednesday, August 6, 2008. The replay may be accessed through the Internet at www.callawaygolf.com or by telephone by calling 1-800-475-6701 toll free for calls originating within the United States or 320-365-3844 for International calls. The replay pass code is 954802.
Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to estimated sales and earnings for 2008, estimated gross margin improvement for 2008, the estimated charges for the Company´s gross margin initiatives, the timing or amount of new product introductions, and anticipated benefits from foreign currency rates, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These estimates and statements are based upon current information and expectations. Accurately estimating the Company´s reported future financial performance is based upon various unknowns including, future changes in foreign currency rates and consumer acceptance and demand for the Company´s products as well as future consumer discretionary purchasing activity, which can be significantly adversely affected by unfavorable economic or market conditions. Actual results may differ materially from those estimated or anticipated as a result of these unknowns or other risks and uncertainties, including delays, difficulties or increased costs in the supply of components needed to manufacture the Company´s products, in manufacturing the Company´s products, or in connection with the implementation of the Company´s planned gross margin initiatives or the implementation of future initiatives; adverse weather conditions and seasonality; any rule changes or other actions taken by the USGA or other golf association that could have an adverse impact upon demand or supply of the Company´s products; a decrease in participation levels in golf; and the effect of terrorist activity, armed conflict, natural disasters or pandemic diseases on the economy generally, on the level of demand for the Company´s products or on the Company´s ability to manage its supply and delivery logistics in such an environment. For additional information concerning these and other risks and uncertainties that could affect these statements and the Company´s business, see Part I, Item 1A of the Company´s Annual Report on Form 10-K for the year ended December 31, 2007, as well as other risks and uncertainties detailed from time to time in the Company´s reports on Forms 10-Q and 8-K subsequently filed from time to time with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Regulation G: The financial results reported in this press release have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). In addition to the GAAP results, the Company has also provided additional information concerning its results, which includes certain financial measures not prepared in accordance with GAAP. The non-GAAP financial measures included in this press release exclude charges associated with the Company´s gross margin initiatives. These non-GAAP financial measures should not be considered a substitute for any measure derived in accordance with GAAP. These non-GAAP financial measures may also be inconsistent with the manner in which similar measures are derived or used by other companies. Management believes that the presentation of such non-GAAP financial measures, when considered in conjunction with the most directly comparable GAAP financial measures, provides additional useful information concerning the Company´s operations without these charges. The Company has provided reconciling information in the text of this press release and in the accompanying schedules.
About Callaway Golf
Through an unwavering commitment to innovation, Callaway Golf Company (NYSE: ELY) creates products and services designed to make every golfer a better golfer. Callaway Golf Company manufactures and sells golf clubs and golf balls, and sells golf accessories, under the Callaway Golf®, Odyssey®, Top-Flite®, and Ben Hogan® brands in more than 110 countries worldwide. For more information please visit www.callawaygolf.com or Shop.CallawayGolf.com.
Callaway Golf Company Consolidated Condensed Balance Sheets (In thousands) (Unaudited)June 30,
December 31,
2008
2007
ASSETS
Current assets:
Cash and cash equivalents
$ 54,974
$ 49,875
Accounts receivable, net
286,990
112,064
Inventories, net
235,790
253,001
Deferred taxes
41,642
42,219
Income taxes receivable
-
9,232
Other current assets
33,308
30,190
Total current assets
652,704
496,581
Property, plant and equipment, net
134,604
128,036 Intangible assets, net
171,944
173,045 Deferred taxes
25,490
18,885 Other assets
42,950
40,416
$ 1,027,692
$ 856,963
LIABILITIES AND SHAREHOLDERS´ EQUITY
Current liabilities:
Accounts payable and accrued expenses
$ 138,224
$ 130,410
Accrued employee compensation and benefits
34,882
44,245
Accrued warranty expense
13,342
12,386
Income taxes payable
16,879
-
Credit facilities
135,000
36,507
Total current liabilities
338,327
223,548
Long-term liabilities
64,366
63,207
Minority interest
2,546
1,978
Shareholders´ equity
622,453
568,230
$ 1,027,692
$ 856,963 Callaway Golf Company Statements of Operations (In thousands, except per share data) (Unaudited)
Quarter Ended
June 30,
2008
2007
Net sales
$ 366,029
100 %
$ 380,017
100 % Cost of sales
194,949
53 %
204,892
54 % Gross profit
171,080
47 %
175,125
46 % Operating expenses:
Selling
80,461
22 %
80,910
21 %
General and administrative
22,791
6 %
24,187
6 %
Research and development
7,538
2 %
7,907
2 % Total operating expenses
110,790
30 %
113,004
30 % Income from operations
60,290
16 %
62,121
16 % Other expense, net
(2,600 )
(1,891 )
Income before income taxes
57,690
16 %
60,230
16 % Income tax provision
20,583
23,591
Net income
$ 37,107
10 %
$ 36,639
10 %
Earnings per common share:
Basic
$ 0.59
$ 0.54
Diluted
$ 0.58
$ 0.53
Weighted-average shares outstanding:
Basic
63,180
67,970
Diluted
63,941
69,274
Six Months Ended
June 30,
2008
2007
Net sales
$ 732,481
100 %
$ 714,624
100 % Cost of sales
385,867
53 %
378,778
53 % Gross profit
346,614
47 %
335,846
47 % Operating expenses:
Selling
160,622
22 %
156,201
22 %
General and administrative
45,279
6 %
45,745
6 %
Research and development
15,462
2 %
15,923
2 % Total operating expenses
221,363
30 %
217,869
30 % Income from operations
125,251
17 %
117,977
17 % Other expense, net
(1,905 )
(3,229 )
Income before income taxes
123,346
17 %
114,748
16 % Income tax provision
46,573
45,273
Net income
$ 76,773
10 %
$ 69,475
10 %
Earnings per common share:
Basic
$ 1.21
$ 1.03
Diluted
$ 1.19
$ 1.01
Weighted-average shares outstanding:
Basic
63,538
67,623
Diluted
64,392
68,798
Callaway Golf Company Consolidated Condensed Statements of Cash Flows (In thousands) (Unaudited)
Six Months
June 30,
2008
2007 Cash flows from operating activities:
Net income
$ 76,773
$ 69,475
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization
19,284
17,600
Deferred taxes
4,130
5,348
Non-cash compensation
2,960
6,527
(Gain) loss on disposal of assets
(438 )
61
Changes in assets and liabilities
(150,755 )
(66,208 )
Net cash (used in) provided by operating activities
(48,046 )
32,803
Cash flows from investing activities:
Capital expenditures
(24,213 )
(18,439 )
Proceeds from sale of capital assets
15
9
Net cash used in investing activities
(24,198 )
(18,430 )
Cash flows from financing activities:
Issuance of Common Stock
2,767
42,108
Dividends paid, net
(4,526 )
(4,757 )
Acquisition of Treasury Stock
(20,076 )
(28,735 )
Net proceeds from (payments on) line of credit
98,441
(24,606 )
Other financing activities
(34 )
2,963
Net cash provided by (used in) financing activities
76,572
(13,027 )
Effect of exchange rate changes on cash and cash equivalents
771
689 Net increase in cash and cash equivalents
5,099
2,035
Cash and cash equivalents at beginning of period
49,875
46,362 Cash and cash equivalents at end of period
$ 54,974
$ 48,397 Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)
Net Sales by Product Category
Quarter Ended
Six Months Ended
June 30,
Growth/(Decline)
June 30,
Growth/(Decline)
2008
2007(1)
Dollars
Percent
2008
2007(1)
Dollars
Percent
Net sales:
Net sales:
Woods
$ 85,992
$ 113,196
$ (27,204 )
-24 %
Woods
$ 202,544
$ 216,261
$ (13,717 )
-6 %
Irons
100,047
97,036
3,011
3 %
Irons
196,543
197,136
(593 )
0 %
Putters
32,934
37,660
(4,726 )
-13 %
Putters
67,488
66,743
745
1 %
Golf balls
74,235
72,415
1,820
3 %
Golf balls
132,668
125,963
6,705
5 %
Accessories and other
72,821
59,710
13,111
22 %
Accessories and other
133,238
108,521
24,717
23 %
$ 366,029
$ 380,017
$ (13,988 )
-4 %
$ 732,481
$ 714,624
$ 17,857
2 %
(1) Prior periods have been restated to reflect current period classification.
Net Sales by Region
Quarter Ended
Six Months Ended
June 30,
Growth/(Decline)
June 30,
Growth/(Decline)
2008 2007
Dollars
Percent
2008 2007
Dollars
Percent
Net sales:
Net sales:
United States
$ 176,077
$ 204,391
$ (28,314 )
-14 %
United States
$ 360,456
$ 388,195
$ (27,739 )
-7 %
Europe
71,824
70,284
1,540
2 %
Europe
137,914
126,307
11,607
9 %
Japan
46,559
33,847
12,712
38 %
Japan
99,899
71,787
28,112
39 %
Rest of Asia
22,072
25,645
(3,573 )
-14 %
Rest of Asia
48,533
48,466
67
0 %
Other foreign countries
49,497
45,850
3,647
8 %
Other foreign countries
85,679
79,869
5,810
7 %
$ 366,029
$ 380,017
$ (13,988 )
-4 %
$ 732,481
$ 714,624