Callaway Golf Company (NYSE:ELY) today announced its financial results
for the first quarter ended March 31, 2008, reporting significant
improvements in sales and earnings over the same period a year ago.
Highlights for the quarter include:
Record net sales of $366.5 million, a 10% increase as compared to
$334.6 million for the same period in 2007.
Fully diluted earnings per share of $0.61 on 64.8 million shares as
compared to $0.48 on 68.3 million shares in 2007. This represents a
27% increase in diluted earnings per share.
Fully diluted earnings per share for the first quarter of 2008 and
2007 include $0.01 of after-tax charges for gross margin improvement
initiatives announced in November, 2006.
"We are pleased with our results for the first
quarter," commented George Fellows, President
and CEO. "The improvements made in our product
development process and supply chain have positively contributed to our
ability to achieve record first quarter sales."
"While cautiously optimistic given our first
quarter results," continued Mr. Fellows, "it
is important to remember that the second quarter is generally when the
consumer purchase cycle begins and it is a critical quarter for us in
achieving our targets. We remain optimistic that we can achieve our full
year guidance range, although given current macroeconomic and market
conditions, we believe our results will most likely be at the lower end
of our original range."
Details of First Quarter Results
Sales
The increase in sales for the first quarter is primarily attributable to:
increased fairway wood sales associated with our FT and FT-i product
launches
increased sales of Odyssey putters driven by our Black Series, Divine
Line, and sell-in of our new products
increased sales of golf balls driven by HX Hot Bite and HX Tour ix
products
increased accessories sales associated with packaged club sets and
headwear
foreign currency exchange rates
Gross Margins
Gross margins as a percentage of net sales were 48% for the first
quarter, the same as for the first quarter of 2007. Charges related to
the Company´s gross margin improvement
initiatives did not have a significant effect on gross margins in either
period.
The Company continues to benefit from the gross margin initiatives
implemented in 2007 which had a positive impact of 130 basis points
during the quarter. This benefit was primarily offset by i) an
unfavorable shift in product mix due to expected lower second year sales
of premium drivers and X-series irons which generally have higher
margins than the 2008 new products and ii) higher fixed cost absorption
charges related to lower golf ball production volumes during the fourth
quarter of 2007. The lower production volumes were consistent with the
Company´s inventory reduction initiatives and
the recent improvements in inventory management and planning, which
enables the Company to operate its golf ball business with less
inventory on hand. The effect of the fourth quarter production volumes
on first quarter results was consistent with the Company´s
expectations and should not affect the balance of the year. The Company
estimates full year gross margins to improve at least 200 basis points
compared to 2007.
Operating Expenses
Operating expenses for the quarter were $111 million, an increase of $6
million when compared to 2007. The increase is primarily due to higher
advertising and promotion expense to support the new products launched
during the quarter, an increase in costs due to the effect of foreign
exchange rates on non-U.S. expense, and general inflation. As a
percentage of sales, operating expenses declined to 30% compared to 31%
in 2007.
Business Outlook
The Company originally estimated in January that its full year 2008 net
sales would be in the range of $1.145 to $1.165 billion and that its
full year pro forma fully diluted earnings per share would be in the
range of $1.08 to $1.18 on an estimated 67 million shares. Pro forma
earnings exclude charges related to the Company´s
gross margin improvement initiatives, currently estimated at $0.08 per
share for 2008. While the Company still estimates its financial results
will fall within this range, given uncertainties surrounding the
economy, second quarter sell-through, and competitive actions, these
results are projected at this time to be at the lower end of this range
on a base of 66 million shares.
For more details, including pro forma reconciliations to assist in
year-over-year comparison, please see the attached "Supplemental
Financial Information."
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 Thursday, May 8, 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 920536.
Disclaimer: Statements used in
this press release that relate to future plans, events, financial
results, performance or prospects, including statements relating to
estimated sales, gross margins, and earnings for 2008, and the estimated
charges for the Company´s gross margin
initiatives, 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 future financial
performance is based upon various unknowns including 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.
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)
- - - - - -
- - - - - -
- - - - - -
March 31
December 31
- - - - - -
2008
2007(1)
- - - - - -
- - - - - -
- - - - - -
ASSETS
- - - - - -
Current assets:
- - - - - -
Cash and cash equivalents
$
39,385
$
49,875
- - - - - -
Accounts receivable, net
300,495
112,064
- - - - - -
Inventories, net
264,319
253,001
- - - - - -
Deferred taxes
42,512
42,219
- - - - - -
Income taxes receivable
-
9,232
- - - - - -
Other current assets
33,377
30,190
- - - - - -
Total current assets
680,088
496,581
- - - - - -
- - - - - -
Property, plant and equipment, net
131,584
128,036
- - - - - -
Intangible assets, net
172,735
173,045
- - - - - -
Deferred taxes
19,094
18,885
- - - - - -
Other assets
39,799
40,416
- - - - - -
$
1,043,300
$
856,963
- - - - - -
- - - - - -
LIABILITIES AND SHAREHOLDERS´ EQUITY
- - - - - -
Current liabilities:
- - - - - -
Accounts payable and accrued expenses
$
159,124
$
130,410
- - - - - -
Accrued employee compensation and benefits
30,204
44,245
- - - - - -
Accrued warranty expense
12,990
12,386
- - - - - -
Credit facilities
155,570
36,507
- - - - - -
Income taxes payable
10,549
-
- - - - - -
Total current liabilities
368,437
223,548
- - - - - -
- - - - - -
Long-term liabilities
63,512
63,207
- - - - - -
- - - - - -
Minority interest
1,526
1,978
- - - - - -
- - - - - -
Shareholders´ equity
609,825
568,230
- - - - - -
$
1,043,300
$
856,963
- - - - - -
- - - - - -
- - - - - -
- - - - - -
(1)Prior period amounts have been
reclassified to conform with the current period classification.
- - - - - -
= = = = = = = = = = =
Callaway Golf Company
- - - - - -
Statements of Operations
- - - - - -
(In thousands, except per share data)
- - - - - -
(Unaudited)
- - - - - -
- - - - - -
- - - - - -
Quarter Ended
- - - - - -
- - - - - -
March 31
- - - - - -
2008
2007
- - - - - -
- - - - - -
Net sales
$
366,452
100
%
$
334,607
100
%
- - - - - -
Cost of sales
190,918
52
%
173,886
52
%
- - - - - -
Gross profit
175,534
48
%
160,721
48
%
- - - - - -
Operating expenses:
- - - - - -
Selling expenses
80,161
22
%
75,291
23
%
- - - - - -
General and administrative expenses
22,488
6
%
21,558
6
%
- - - - - -
Research and development expenses
7,924
2
%
8,016
2
%
- - - - - -
Total operating expenses
110,573
30
%
104,865
31
%
- - - - - -
Income from operations
64,961
18
%
55,856
17
%
- - - - - -
Other income (expense), net
695
(1,338
)
- - - - - -
Income before income taxes
65,656
18
%
54,518
16
%
- - - - - -
Income tax provision
25,990
21,682
- - - - - -
Net income
$
39,666
11
%
$
32,836
10
%
- - - - - -
- - - - - -
Earnings per common share:
- - - - - -
Basic
$
0.62
$
0.49
- - - - - -
Diluted
$
0.61
$
0.48
- - - - - -
Weighted-average shares outstanding:
- - - - - -
Basic
63,895
67,272
- - - - - -
Diluted
64,843
68,318
- - - - - -
= = = = = = = = = = =
Callaway Golf Company
- - - - - -
Consolidated Condensed Statements of Cash Flows
- - - - - -
(In thousands)
- - - - - -
(Unaudited)
- - - - - -
- - - - - -
- - - - - -
Quarter Ended
- - - - - -
March 31
- - - - - -
2008
2007(1)
- - - - - -
Cash flows from operating activities:
- - - - - -
Net income
$
39,666
$
32,836
- - - - - -
Adjustments to reconcile net income to net cash used in operating
activities:
- - - - - -
Depreciation and amortization
8,794
9,009
- - - - - -
Deferred taxes
8,521
(538
)
- - - - - -
Non-cash compensation
1,468
3,127
- - - - - -
(Gain)/loss on disposal of assets
(230
)
3
- - - - - -
Changes in assets and liabilities
(179,600
)
(122,057
)
- - - - - -
Net cash used in operating activities
(121,381
)
(77,620
)
- - - - - -
- - - - - -
Cash flows from investing activities:
- - - - - -
Capital expenditures
(11,732
)
(7,987
)
- - - - - -
Net cash used in investing activities
(11,732
)
(7,987
)
- - - - - -
- - - - - -
Cash flows from financing activities:
- - - - - -
Issuance of Common Stock
2,767
12,833
- - - - - -
Acquisition of Treasury Stock
(72
)
(15,155
)
- - - - - -
Net proceeds from line of credit
119,063
75,000
- - - - - -
Other financing activities
(254
)
951
- - - - - -
Net cash provided by financing activities
121,504
73,629
- - - - - -
- - - - - -
Effect of exchange rate changes on cash and cash equivalents
1,119
210
- - - - - -
Net decrease in cash and cash equivalents
(10,490
)
(11,768
)
- - - - - -
Cash and cash equivalents at beginning of period
49,875
46,362
- - - - - -
Cash and cash equivalents at end of period
$
39,385
$
34,594
- - - - - -
- - - - - -
- - - - - -
(1)Prior period amounts have been
reclassified to conform with the current period classification.
- - - - - -
= = = = = = = = = = =
Callaway Golf Company
- - - - - -
Consolidated Net Sales and Operating Segment Information
- - - - - -
(In thousands)
- - - - - -
(Unaudited)
- - - - - -
- - - - - -
- - - - - -
Net Sales by Product Category
- - - - - -
Quarter Ended
- - - - - -
March 31
Growth/(Decline)
- - - - - -
2008
2007(1)
Dollars
Percent
- - - - - -
Net sales:
- - - - - -
Woods
$
116,552
$
103,065
$
13,487
13
%
- - - - - -
Irons
96,496
100,100
(3,604
)
-4
%
- - - - - -
Putters
34,554
29,083
5,471
19
%
- - - - - -
Golf balls
58,433
53,548
4,885
9
%
- - - - - -
Accessories and other
60,417
48,811
11,606
24
%
- - - - - -
$
366,452
$
334,607
$
31,845
10
%
- - - - - -
- - - - - -
(1)Prior period amounts have been
reclassified to conform with the current period classification.
- - - - - -
- - - - - -
Net Sales by Region
- - - - - -
Quarter Ended
- - - - - -
March 31
Growth/(Decline)
- - - - - -
2008
2007(1)
Dollars
Percent
- - - - - -
Net sales:
- - - - - -
United States
$
184,380
$
183,804
$
576
0
%
- - - - - -
Europe
66,090
56,023
10,067
18
%
- - - - - -
Japan
53,339
37,940
15,399
41
%
- - - - - -
Rest of Asia
26,461
22,821
3,640
16
%
- - - - - -
Other foreign countries
36,182
34,019
2,163
6
%
- - - - - -
$
366,452
$
334,607
$
31,845
10
%
- - - - - -
- - - - - -
- - - - - -
- - - - - -
Operating Segment Information
- - - - - -
Quarter Ended
- - - - - -
March 31
Growth/(Decline)
- - - - - -
2008
2007(1)
Dollars
Percent
- - - - - -
Net sales:
- - - - - -
Golf clubs
$
308,019
$
281,059
$
26,960
10
%
- - - - - -
Golf balls
58,433
53,548
4,885
9
%
- - - - - -
$
366,452
$
334,607
$
31,845
10
%
- - - - - -
Income before provision for income taxes:
- - - - - -
Golf clubs
$
76,199
$
65,343
$
10,856
17
%
- - - - - -
Golf balls
4,445
5,728
(1,283
)
-22
%
- - - - - -
Reconciling items (1)
(14,988
)
(16,553
)
1,565
9
%
- - - - - -
$
65,656
$
54,518
$
11,138
20
%
- - - - - -
- - - - - -
(1) Represents corporate general and
administrative expenses and other income (expense) not utilized by
management in determining segment profitability.
- - - - - -
= = = = = = = = = = =
Callaway Golf Company
- - - - - -
Supplemental Financial Information
- - - - - -
(In thousands, except per share data)
- - - - - -
(Unaudited)
- - - - - -
- - - - - -
Quarter Ended March 31
Quarter Ended March 31
- - - - - -
2008
2007
- - - - - -
- - - - - -
Pro FormaCallaway Golf
Gross Margin Improvement Initiatives
Total as Reported
Pro FormaCallaway Golf
Gross Margin Improvement Initiatives
Total as Reported
- - - - - -
Net sales
$
366,452
$
-
$
366,452
$
334,607
$
-
$
334,607
- - - - - -
Gross profit
176,629
(1,095
)
175,534
162,126
(1,405
)
160,721
- - - - - -
% of sales
48
%
n/a
48
%
48
%
n/a
48
%
- - - - - -
Operating expenses
110,573
-
110,573
104,865
-
104,865
- - - - - -
Income from operations
66,056
(1,095
)
64,961
57,261
(1,405
)
55,856
- - - - - -
Other income (expense), net
695
-
695
(1,338
)
-
(1,338
)
- - - - - -
Income (loss) before income taxes
66,751
(1,095
)
65,656
55,923
(1,405
)
54,518
- - - - - -
Income tax provision
26,412
(422
)
25,990
22,236
(554
)
21,682
- - - - - -
Net income
$
40,339
$
(673
)
$
39,666
$
33,687
$
(851
)
$
32,836
- - - - - -
- - - - - -
Diluted earnings (loss) per share:
$
0.62
$
(0.01
)
$
0.61
$
0.49
$
(0.01
)
$
0.48
- - - - - -
Weighted-average shares outstanding:
- - - - - -
64,843
64,843
64,843
68,318
68,318
68,318
- - - - - -
= = = = = = = = = = =
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA):
- - - - - -
- - - - - -
2008 Trailing Twelve Months EBITDA
2007 Trailing Twelve Months EBITDA
- - - - - -
Quarter Ended
Quarter Ended
- - - - - -
June 30
September 30
December 31
March 31
June 30
September 30
December 31
March 31
- - - - - -
2007
2007
2007
2008
Total
2006
2006
2006
2007
Total
- - - - - -
Net income (loss)
$
36,639
$
1,269
$
(16,157
)
$
39,666
$
61,417
$
22,539
$
(11,916
)
$
(10,194
)
$
32,836
$
33,265
- - - - - -
Interest expense (income), net
1,672
29
(216
)
591
2,076
1,522
1,132
905
1,677
5,236
- - - - - -
Income tax provision (benefit)
23,591
830
(12,415
)
25,990
37,996
14,934
(6,075
)
(10,948
)
21,682
19,593
- - - - - -
Depreciation and amortization expense
8,591
9,864
7,862
8,794
35,111
7,935
8,736
8,313
9,009
33,993
- - - - - -
EBITDA
$
70,493
$
11,992
$
(20,926
)
$
75,041
$
136,600
$
46,930
$
(8,123
)
$
(11,924
)
$
65,204
$
92,087
- - - - - -
