Callaway Golf Co. slightly increased its earnings guidance for 2014 due to continued brand momentum and market share gains but lowered its guidance in 2015 on heightened volatility in foreign currency exchange rates.
For 2014, its earnings guidance was increased to 17 to 19 cents a share, up from 15 cents to 18 cents previously. Sales are still expected to increase 6 percent as higher than anticipated sales of new products offset the impact of the foreign currency rate changes.
“Sell-through remains good, our launches have gone as expected or slightly better, and we continue to have the sense that the market is gradually improving,” said Chip Brewer, president and CEO, on a conference call with analysts. “The recent foreign exchange movements have put some pressure on our top line, but fortunately due to strong performance in the marketplace, especially with our Big Bertha and Big Bertha Bay irons which launched during the quarter.”
Gross margins in the year are now estimated to 40.5 percent, up from 37.3 percent in 2013, aided by improved operating efficiencies, improved pricing and mix of product sales, and the decrease in charges related to the cost-reduction initiatives. It had previously estimated margins of 41.0 percent, with FX blamed for the slight revision.
Operating expenses are now estimated to be approximately $331 million compared to $326 million in 2013 largely due to a planned increase in investments in tour and marketing. That’s down from $336 million previously-estimated due to continued cost management as well as changes in foreign currency rates.
For 2015, however, Callaway said it now expects a modest decline in sales and approximately breakeven profitability. Previously, it had expected sales growth of 1 percent to 2 percent and steady improvement in profitability.
Callaway noted that since it last provided guidance in October, the U.S. dollar has strengthened significantly. For example, the change in rates over the last two months has negatively affected 2015 projected sales by $31 million and projected earnings by 26 cents per share. Callaway said that if the foreign currency rates persist, it would seek to mitigate the effects of such rates over the long-term through changes in local market pricing, sourcing strategy, and cost management.
On the positive side, Brewer said that for 2015, there’s “been no change in our expectations, other than FX movements.”
On a currency-neutral basis, Callaway sees sales growth of 2 percent to 3 percent and EPS growth nearing 100 percent based upon 2014 expected results. The sales growth is expected to be driven by an estimated 5 percent – 6 percent c-n 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.
“We are disappointed with the FX issue, but we are resolved to deal with it effectively,” said Brewer. “We believe the challenge will inevitably make us stronger, as we are committed to further long-term improvements to drive our business back to reasonable levels of profitability.”