Callaway Golf Company feels that they are taking the first major steps in a journey to restore the company to its position of prominence in the golf world. The actions, which include the integration of the Callaway Golf, Odyssey, Top-Flite, and Ben Hogan selling functions and the complete consolidation of all golf ball manufacturing at Top-Flite facilities, are expected to net the company a savings of approximately $70 million over a two year period, with $50 million to $60 million of the savings expected in 2006 and the balance in 2007.
Most of the savings are expected to flow to the bottom line, but a portion will be re-invested into marketing efforts as well.
Callaway expects to see charges of approximately $12 million, with approximately $6 million to be taken in the third quarter of 2005.
While the integration of the ball operations in the Chicopee and Gloversville facilities has been ongoing for some time and called out in previous integration cost estimates, the company is expected to realize additional savings from the staff reductions after the closure of the Carlsbad ball manufacturing operation in the fourth quarter.
The company is also executing on two other major initiatives that are designed to improve gross margins and to improve the marketing message and its execution, thus providing additional upside in the business moving forward. On the margin front, Callaway will look at more oversees production, but is also investing in more automation of its domestic operations. Management emphasized that quality will remain a priority. They will also see margin improvement due to the integration of the ball operations.
While Callaway has ceased providing sales and earnings guidance, it did indicate that third quarter sales appear to be on a record pace, with estimated net sales for the period jumping by two-thirds to approximately $215 million, compared to $129 million last year, bringing nine-month YTD sales to roughly $838 million, or a 6% increase from the same period last year. Last years third quarter was heavily impacted by the companys move to regain share and balance prices on clubs by shipping additional goods at no charge.
Margins and profits took a major beating in the year-ago quarter as well, with the company posting a loss of 53 cents per diluted share last year. Management expects to see that loss shrink to a loss per share ranging from 6 cents to 12 cents. Excluding all integration charges for both years, earnings for the 2005 third quarter are estimated to range from earnings of a penny to a loss of 5 cents per share, compared to a loss of 46 cents last year.
Company president and CEO George Fellows wasnt mincing words when addressing questions about the potential sale of the company.
“The company was never for sales,” said Fellows. “I think the stuff that everybody has been conjecturing about is just that, conjecture.” He said that “so-called expressions of interest” that “may or may not have come across the transom” have no real significance because they are “way off the mark.” He said the Board was duty-bound to address any overtures and did hire a banker to assess those expressions of interest.
Asked by an analyst how he expects to grow the business in a flat golf market these days, Fellows replied, “Youre missing the fact that there are some competitors that have some business and we think that its available.”
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