By Thomas J. Ryan

Acushnet Holdings Corp., which owns Titleist and FootJoy, reported that adjusted earnings rose moderately in the first six months while sales expanded 4.6 percent, according to an updated regulatory filing to support its initial public offering (IPO).

As reported, the company, which is owned by Fila Korea, filed for an initial public offering in June to raise up to $100 million. More detailed terms of the IPO, such as price estimates, the number of shares being sold and sellers, have not yet been disclosed. All the shares are being sold by selling shareholders. The company has applied to trade on the New York Stock Exchange under the symbol GOLF.

According to the new filing, sales in the half ended June 30 reached $903 million and grew 5.6 percent on a currency-neutral basis.

By category, Titleist golf balls, its largest category, continued to see weakness. Sales declined 2.8 percent to $296.2 million and were down 1.7 percent on a currency-neutral basis.

The decrease was driven by a sales-volume decline of its latest generation Pro V1 and Pro V1x golf balls, which were in their second model year. The decline was partly offset by gains in its newly introduced performance golf balls, which carry a lower average selling price than its Pro V1 franchise.

Operating profits in the Titleist golf balls segment were off 11.8 percent to $52.4 million. The drop reflected a mix shift from the Pro V1 franchise to the performance golf ball models, lower gains on foreign currency exchange contracts, and a $2.9 million expense related to the segment allocation of a one-time executive bonus.

Acushnet estimated it held nearly one half of the 2015 global top grade wholesale golf ball market.

Titleist’s golf club business grew 9 percent on a reported basis, to $240.3 million, and gained 9.4 percent on a currency-neutral basis. The gain was primarily driven by an increase in average selling prices on wedges and irons as well as the launches in the first quarter of Vokey Design wedges, Japan-specific VG3 clubs and Scotty Cameron Select putters. Sales also benefited from the introduction of a new iron series in the fourth quarter of 2015. The increase was partially offset by lower sales volume of its drivers and fairway woods, which were in their second model year.

Operating income in the Titleist golf clubs segment grew 12.5 percent to $37.5 million, due to higher average selling prices on wedges and irons and the increased sales.

Titleist golf gear’s revenues grew 10.7 percent to $84.3 million and added 12.3 percent on a currency-neutral basis, due to gains across all categories in the segment. The segment includes golf bags, headwear, gloves, travel gear, head covers and other accessories. Operating income in the segment expanded 23.7 percent to $14.6 million, due to higher gross profit and the sales improvement.

FootJoy golf wear sales increased 6 percent to $249.2 million and gained 7 percent on a currency-neutral basis. The gains were led by growth in its apparel and gloves categories and aided by the launch of its first women’s apparel collection early in 2016.

Operating income at the FootJoy segment still declined 19.1 percent to $25.8 million. Gross margins eroded due to a decrease in gains on foreign currency exchange contracts versus the same period a year ago. Operating expenses also increased due to a $2.1 million expense tied to the segment allocation of a one-time executive bonus and an increase of $1.4 million in marketing and promotional costs and expenses related to its FootJoy e-commerce and women’s golf apparel initiatives.

By region, sales in the U.S. inched up 2.3 percent, to $482.7 million. Sales outside of the U.S. increased 7.5 percent, to $420.3 million, and advanced 9.7 percent on a currency-neutral basis.

The bottom line was impacted by special charges related to the company’s IPO in the year-ago period.

Gross profit increased $6.3 million to $459.2 million for the six months, but decreased to 50.9 percent of sales compared to 52.5 percent in the same period a year ago. The margin decrease was primarily due to lower gains on foreign currency exchange contracts versus the year-ago period, although the overall gross profit benefited from higher average selling prices of new wedges and irons and higher golf club sales volumes.

SG&A expenses decreased $6.2 million to $306.8 million for the half, reflecting costs associated with its Equity Appreciation Rights (EAR) Plan recorded in 2015. Excluding the expense associated with its EAR Plan, SG&A expenses would have increased $14.7 million to $306.8 million. The increase reflects $9 million in transaction costs related to its IPO, a $7.5 million one-time executive bonus, $3.8 million in additional marketing and promotional costs related to new golf club launches and FootJoy e-commerce and women’s golf apparel initiatives and $1.5 million in additional legal and professional fees. Those expenses were partially offset by a decrease in associate incentive compensation accruals and a favorable impact of changes in foreign currency exchange rates.

On an adjusted basis, excluding non-recurring items, net earnings improved 5.7 percent to $75.3 million while EBITDA inched up 2.5 percent to $164.4 million.

In other news in the report:

  • On April 27, Acushnet entered into a credit agreement for a $275 million multi-currency revolving credit facility and a $375 million term loan.
  • Fila Korea exercised all of the company’s outstanding common stock warrants in July 2016, and related proceeds were used to redeem all of its outstanding 7.5 percent bonds due 2021.
  • Christopher Lindner joined the company in August 2016 as president of FootJoy. He was previously President of Keds.

Photo courtesy Acushnet/Titleist