Callaway Golf Company announced its financial results for the six months ended June 30, 2003, announcing net income of $76.6 million and diluted earnings per share of $1.16, both records for the Company. The Company estimates diluted earnings per share for the year of approximately $0.95 on a lower revenue estimate of $780 million.
For the quarter ended June 30, 2003, the Company reported net sales of $242.1 million, compared to $252.5 million during the same quarter in 2002. Foreign currency exchange rates favorably impacted net sales for the second quarter of 2003 by approximately $7.5 million. Net income during the second quarter was $34.1 million, versus $37.1 million for the same quarter last year. Earnings per diluted share were $0.52, compared to $0.55 for the same quarter last year. The year-over-year decline in net sales and earnings for the quarter was consistent with the Company’s previous guidance.
For the six months ended June 30, 2003, the Company reported net sales of $513.8 million, an increase of 1% compared to $509.2 million during the same period in 2002. Foreign currency exchange rates favorably impacted net sales for the period by approximately $19.4 million. Net income during the first six months was $76.6 million, an increase of 13% compared to $67.8 million for the same period last year. Earnings per diluted share were $1.16, an increase of 17% compared to $0.99 for the same period last year.
“We are pleased with our results in the first half of 2003,” said Ron Drapeau, Chairman, President and CEO. “As we expected, there was some shifting of business from the second quarter, resulting in a slight decline on a quarter-to-quarter basis. But we achieved record six-month earnings, growing net sales by 1% while reducing operating expenses by 9%. In the process of achieving these results, we maintained our #1 market share position in the U.S. in woods, irons and putters.”
SALES BY PRODUCT AND REGION
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Second Quarter - 2003 First Half - 2003
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$'s - millions Net Sales % Change Net Sales % Change
vs. vs.
2002 2002
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Woods $77.0 (20%) $169.9 (16%)
Irons 83.0 6% 179.2 11%
Golf Balls 15.6 (34%) 29.3 (37%)
Putters 46.2 27% 91.1 47%
Accessories, Other 20.3 16% 44.3 19%
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TOTAL $242.1 (4%) $513.8 1%
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United States $143.2 0% $292.5 (1%)
International 98.9 (9%) 221.3 3%
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TOTAL $242.1 (4%) $513.8 1%
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Brad Holiday, Executive Vice-President and Chief Financial Officer, stated, “We are pleased to report gross margins in the first six months of 51%, essentially flat compared with 52% for the first six months last year. In addition, operating expenses for the same period were reduced to 28% of net sales, versus 31% for the same period last year. Our balance sheet remains strong with a 49% increase in cash and an 18% reduction in inventories versus the same time last year.”
In accordance with the Company’s dividend practice, the Board of Directors will determine the next dividend in August.
“With the performance achieved in the first half of the year, and with modest incremental contributions from some limited product launches planned for the last part of 2003, we now expect that annual fully diluted earnings per share will exceed our previous guidance,” reported Mr. Drapeau. “We are now targeting annual net sales at approximately $780 million with our earnings forecast increasing to approximately $0.95 per share. However, achieving these targets will not be easy. The golf equipment marketplace, particularly in the U.S., remains depressed and our competitors are taking many aggressive actions to gain business. It is also important that the overall economy, particularly in the U.S., continue to show some signs of improvement. We continue to think that quarterly guidance is not appropriate or productive, and decline to provide guidance beyond the annual targets,” stated Mr. Drapeau. “However, those familiar with the seasonality in our industry know to expect a significant drop in sales and earnings in the back half of the year, including a loss in the fourth quarter.”
“This guidance does not include any adjustments associated with the expected acquisition of the Top-Flite Golf assets,” continued Mr. Drapeau. “At this time it is premature for us to publish such information. In today’s conference call I plan to cover some additional information in connection with that transaction, but I will not be providing financial guidance for the rest of this year or for next year until we have more clarity around the certainty and timing of the transaction.”
Callaway Golf Company
Consolidated Condensed Statement of Operations
(In thousands, except per share data)
(unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
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2003 2002 2003 2002
--------- --------- --------- ---------
Net sales $242,077 100% $252,473 100% $513,796 100% $509,182 100%
Cost of goods
sold 115,583 48% 114,684 45% 249,465 49% 242,641 48%
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Gross profit 126,494 52% 137,789 55% 264,331 51% 266,541 52%
Operating
expenses:
Selling 53,164 22% 54,978 22% 102,064 20% 112,277 22%
General and
administrative 14,629 6% 14,988 6% 28,470 6% 28,408 6%
Research and
development 6,242 3% 8,444 3% 12,914 3% 16,327 3%
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Total operating
expenses 74,035 31% 78,410 31% 143,448 28% 157,012 31%
Income from
operations 52,459 22% 59,379 24% 120,883 24% 109,529 22%
Other income,
net 1,472 1,404 288 1,022
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Income before
income taxes 53,931 22% 60,783 24% 121,171 24% 110,551 22%
Income tax
provision 19,788 23,641 44,550 42,715
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Net income $34,143 14% $37,142 15% $76,621 15% $67,836 13%
