Callaway Golf Company increased its 2014 earnings guidance to 17 to 19 cents a share compared to prior guidance of 15 cents to 18 cents per share. The company also announced that it is refining other aspects of its 2014 guidance but maintaining its 2014 sales guidance, which is an expected increase in net sales of approximately 6 percent in 2014 compared to 2013. In addition, the company announced revisions to its guidance for 2015 as a result of the recent volatility in foreign currency exchange rates.

“We are pleased with the success we have had in 2014, including significant improvements in our operations and financial results, as well as improvements in brand momentum and market share gains,” commented Chip Brewer, President and Chief Executive Officer. “This success will position us well for 2015 from an operational perspective. However, because approximately half of our business is transacted outside of the United States, if the recent strengthening of the U.S dollar persists or strengthens further, it will have a significant unfavorable impact on our reported results for 2015. Fortunately, despite these potential currency effects, we continue to see strong overall results on a constant currency basis in most areas of our business and expect continued brand momentum and market share gains in 2015.”

2014 Guidance

The company’s estimated results for 2014 reflect the many operating improvements the company has made during its turnaround as well as the recent unfavorable changes in foreign currency rates.  Because of the timing of these rate changes and the company’s hedging program, the company expects that the recent foreign currency changes will have only a limited impact upon its results for 2014.

The company’s current guidance for the year ending December 31, 2014 is as follows:

  • Net sales for the full year continue to be estimated at approximately $890 million, an increase of 6 percent compared to $843 million in 2013. The company believes this growth rate will exceed the overall market and be driven by brand momentum and market share gains. The company was able to maintain its sales guidance despite the impact of the foreign currency rate changes due to higher than anticipated sales of new products during the fourth quarter.
  • Gross margins are currently estimated to be approximately 40.5 percent, compared to gross margins of 37.3 percent in 2013. This anticipated improvement in 2014 is expected to result from improved operating efficiencies, improved pricing and mix of product sales, and the decrease in charges related to the cost-reduction initiatives. The company previously had estimated 2014 gross margins of 41.0 percent. The slight change in estimate includes the limited effect of the unfavorable changes in foreign currency rates.
  • Operating expenses are currently estimated to be approximately $331 million compared to $326 million in 2013 due to a planned increase in investments in tour and marketing, higher variable sales related expenses, and modest cost of living increases. The company had previously estimated 2014 operating expenses of $336 million. The change in estimate is primarily due to continued cost management as well as changes in foreign currency rates.
  • Pre-tax income is estimated to range from $19 – $21 million compared to a pre-tax loss of $13.3 million in 2013. The company had previously estimated pre-tax income for 2014 of $18 – $20 million. The company continues to estimate that its tax provision will be approximately $5.6 million in 2014, which is the same as in 2013.
  • Fully diluted earnings per share is estimated to range from $0.17 to $0.19 on a base of 78 million shares, compared to a 2013 loss per share of $0.31 on 73 million shares. The company previously estimated fully diluted earnings per share of $0.15 – $0.18. If the company is successful in achieving these results, it would be the company’s first full year net profit since 2008 and would represent a significant milestone in the company’s turnaround.

2015 Guidance

The company is revising its 2015 guidance by providing guidance on a constant currency basis and by discontinuing its prior guidance on a GAAP basis.  The company previously estimated for 2015 on a GAAP basis sales growth of 1 percent – 2 percent and steady improvement in profitability. The company confirmed that the sole reason for the revised guidance is the significant volatility in the foreign currency exchange markets over the last two months.

Since the company last provided guidance in October, the U.S. dollar strengthened significantly against most foreign currencies in which the company conducts business. If these rates persist or the U.S. dollar strengthens further, the exchange rates are expected to have a significant negative impact upon the company’s 2015 reported results.  For example, the change in rates over the last two months has negatively affected 2015 projected sales by $31 million and projected earnings by $0.26 per share.  If the current rates persist at these levels throughout 2015, the company would expect for 2015 a modest decline in reported sales and approximately breakeven profitability. The impact of foreign currency rates on 2015 results ultimately will be determined by actual foreign currency rates throughout 2015, as well as the effect of any hedging contracts implemented in 2015.

The company also reiterated that its underlying business remains strong and continues to improve. Given the strength of its business and its 2015 product line, the company is estimating for 2015, on a constant currency basis compared to 2014, sales growth of 2 percent – 3 percent and earnings per share growth nearing 100 percent based upon 2014 expected results.  The sales growth is expected to be driven by an estimated 5 percent – 6 percent constant-currency sales growth in the company’s core channel business, partially offset by a strategic change in product launch timing and a reduction in certain closeout sales compared to 2014.  The company added that if the foreign currency rates persist, the company would seek to mitigate the effects of such rates over the long-term through changes in local market pricing, sourcing strategy, and cost management.