Callaway Golf Company saw fourth quarter net sales total $179.9 million, increasing 16.4% from $154.5 million for the same period last year. The company reported a net loss of $10.2 million for the quarter, shrinking from a loss of $18.7 million during last year's Q4. Diluted earnings per share were a loss of 15 cents in this quarter, improving from a loss of 27 cents per share last year.
The 2006 fourth quarter loss per share includes 2 cents of after-tax charges for employee equity-based compensation associated with FAS 123R, a penny for charges related to the restructuring initiatives announced in September 2005, and a penny for gross margin improvement initiatives announced in November 2006. The fourth quarter of 2005 includes after-tax charges of 3 cents for the integration of Top-Flite and 2 cents for the restructuring charges. Excluding these charges, the company's pro forma loss per share for the fourth quarter of 2006 would have been 11 cents, as compared to pro forma loss per share of 22 cents for the fourth quarter of 2005.
Gross profit for the fourth quarter of 2006 was $58.8 million (or 33% of net sales) compared to $48.2 million (or 31% of net sales) for the fourth quarter of 2005.
Operating Expenses for the fourth quarter of 2006 were $79.9 million compared to $80.8 million for the same period in 2005.
Highlights for the full year of 2006 include:
Net sales of $1.018 billion, as compared to $998.1 million for the same period in 2005.
Fully diluted earnings per share of 34 cents on 68.5 million shares, as compared to fully diluted earnings per share of 19 cents on 69.2 million shares in 2005.
The 2006 fully diluted earnings per share includes after-tax charges of 8 cents for employee equity-based compensation associated with FAS 123R, 4 cents for the integration of Top-Flite, 3 cents for the restructuring initiatives, and 2 cents for the gross margin improvement initiatives. The full year of 2005 includes after-tax charges of 11 cents for integration of Top-Flite, 7 cents for the restructuring, and a penny for employee equity-based compensation. Excluding these charges, the company's pro forma fully diluted earnings per share for 2006 would have been 51 cents compared to 38 cents for 2005.
Gross profit for 2006 was $398.1 million (or 39% of net sales) compared to $414.4 million (or 42% of net sales) for 2005. The decline in gross profit is primarily the result of a lower mix of higher margin irons, as well as lower Top-Flite and Ben Hogan gross margins due to the initiatives to clear older inventory.
Operating Expenses for 2006 were $361.0 million, a decrease of $36.2 million compared to $397.2 million in 2005. A majority of the decrease is due to the restructuring initiatives announced in September 2005.
“We have made significant progress this year in improving operations and profitability,” announced George Fellows, President and CEO. “Specifically, we were able to reduce our pro forma operating expenses in 2006 by approximately $35 million, which is in addition to the $8 million saved in the fourth quarter of 2005. We are also pleased with our fourth quarter results which reflect stronger sales and gross margins and significantly improved earnings compared to the fourth quarter last year.”
“While pleased with our progress so far, we recognize that there is more we must do to further improve our operations and profitability,” continued Mr. Fellows. “We have therefore begun implementing our previously announced gross margin initiatives, which are targeted at saving $50 to $60 million over the next two years. We also began the relaunch of the Top-Flite brand at the PGA Show in Orlando at the end of January and are encouraged by the reception the new Top-Flite D2 ball technology has received. With these projects underway, along with the 5 out of 11 'Editor Choice' awards we received for our new 2007 products in Golf Digest's 'Hot List' equipment review, we are optimistic as we begin the new golf season.”
Business Outlook
The company estimates that its full year 2007 net sales will be in the range of $1.035 to $1.055 billion. The company also estimates that its 2007 full year pro forma fully diluted earnings per share will be in the range of 75 cents to 85 cents, which represents an estimated increase of over 45% as compared to the company's pro forma fully diluted earnings per share in 2006 of 51 cents as discussed above. Estimated pro forma earnings for 2007 exclude charges related to employee long-term incentive compensation as well as charges related to the company's gross margin initiatives.
Going forward, the company's pro forma results will include charges for employee long-term incentive compensation, which are estimated to be 9 cents per share in 2007 as compared to 8 cents in 2006. As a result, the company's pro forma fully diluted earnings per share for 2007 including these charges are estimated to be in the range of 66 cents to 76 cents, as compared to 43 cents in 2006.
Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)
Quarter
Ended
December
31,
--------------------------
2006 2005
--------- ---------
Net sales $179,884 100% $154,493 100%
Cost of sales 121,112 67% 106,316 69%
--------- ---------
Gross profit 58,772 33% 48,177 31%
Operating expenses:
Selling expense 52,404 29% 53,945 35%
General and administrative expense 20,483 11% 20,290 13%
Research and development expense 6,999 4% 6,550 4%
--------- ---------
Total operating expenses 79,886 44% 80,785 52%
Income (loss) from operations (21,114) -12% (32,608) -21%
--------- ---------
Other income (expense), net (28) (417)
--------- ---------
Income (loss) before income taxes (21,142) -12% (33,025) -21%
Income tax provision (benefit) (10,948) (14,361)
--------- ---------
Net income (loss) $(10,194) -6% $(18,664) -12%
========= =========
Earnings (loss) per common share:
Basic ($0.15) ($0.27)
Diluted ($0.15) ($0.27)
Weighted-average shares outstanding:
Basic 66,993 69,268
Diluted 66,993 69,268
Year
Ended
December
31,
----------------------------
2006 2005
----------- ---------
Net sales $1,017,907 100% $998,093 100%
Cost of goods sold 619,832 61% 583,679 58%
----------- ---------
Gross profit 398,075 39% 414,414 42%
Operating expenses:
Selling expense 254,526 25% 290,074 29%
General and administrative expense 79,709 8% 80,145 8%
Research and development expense 26,785 3% 26,989 3%
----------- ---------
Total operating expenses 361,020 35% 397,208 40%
Income from operations 37,055 4% 17,206 2%
Other income (expense), net (2,057) (2,669)
----------- ---------
Income before income taxes 34,998 3% 14,537 1%
Income tax provision 11,708 1,253
----------- ---------
Net income $23,290 2% $13,284 1%
=========== =========
Earnings per common share:
Basic $0.34 $0.19
Diluted $0.34 $0.19
Weighted-average shares outstanding:
Basic 67,732 68,646
Diluted 68,503 69,239
