If someone didnt know any better they would think that senior management at Callaway Golf Company had very little reason to endear themselves to the investment community these days. Based on the tone and attendance on the second quarter call with analysts, the company appears to be biding its time until it no longer has to deal with those pesky analysts anymore. Requests for more detail and an outlook on the future were met with the response that “were gonna be better than we were last year” from the companys CFO, the only manager that participated on the call. Perhaps a sale of the company is possible soon.
The fact is that Callaway appears to be making some progress with a turnaround in its business as a new Big Bertha driver, strong sales in the irons category, a dominating position in putters, and a strengthening Callaway brand golf ball business could almost make one forget for a minute the turmoil of the last two years. But that would take the efforts of a full-time permanent CEO that could deliver a vision and a message of hope to the companys shareholders, employees, and customers. But alas, he was nowhere to be found.
Callaway posted an 8.5% sales increase for the second quarter ended June 30, but continued efforts in integrating the Top-Flite business kept the company from posting pro forma earnings growth for the period. While the reported net income gain appears to paint a brighter picture, pro forma net income was actually flat to last years pro forma results. ELY saw $2.0 million, or 3 cents per share, in integration charges in Q2, compared to after-tax integration charges of $6.7 million, or 10 cents per share, in the year-ago quarter.
Brad Holiday, Callaways CFO, said that they have captured much of the benefits of the acquisition already, but they have “a few more things” to do before the integration is complete. ELY recently completed the consolidation of the Nordic warehouse they acquired in the deal and have consolidated that operation into the U.K. operation. He said the last piece to complete is the Top-Flite domestic systems, which may provide some efficiencies, primarily in the back office positions.
While the U.S. saw a 5.9% increase in sales for the period, the Europe business took a step back, declining 2.2% to $56.6 million. Japan exploded in the second quarter, posting an 82% increase in sales to $30.2 million. The Rest of Asia region saw revenues increase 11.2% to $19.1 million. Currency exchange added about $6 million to the top line, which would bring total organic growth down to about 6.5% and International sales growth to roughly 7% for the period.
The golf club segment posted a 2.2% increase in operating profits for the period to $33.4 million and the golf ball segment realized a 60% increase in profit to $6.0 million. However, when excluding integration charges for both years, the ball business would have posted a $7 million profit versus a $9 million profit in Q2 2004.
| Callaway Golf Company | |||
| Fiscal Second Quarter Results | |||
| (in $ millions) | 2005 | 2004 | Change |
| Total Sales | $323.1 | $297.9 | +8.5% |
| U.S. Sales | $181.5 | $171.3 | +5.9% |
| Intl Sales | $141.7 | $126.6 | +11.9% |
| Woods | $69.6 | $75.4 | -7.8% |
| Irons | $111.7 | $87.0 | +28.3% |
| Putters | $34.0 | $29.2 | +16.4% |
| Golf Balls | $70.8 | $74.5 | -5.1% |
| Access., Other | $37.1 | $31.7 | +17.1% |
| Gross Margins | 45.4% | 42.9% | +250 bps |
| Net Inc (Loss) | $18.4 | $13.7 | +34.1% |
| Diluted EPS | 27¢ | 20¢ | +35.0% |
| Inventories* | $193.4 | $154.6 | +25.1% |
| Accts Rec.* | $238.3 | $261.1 | -8.7% |
