Callaway Golf Company has announced its financial results , announcing a 42% year-over-year increase in diluted earnings per share on a 6% increase in sales for the first
quarter ended March 31, 2003. The Company reported net sales of $271.7 million, compared to $256.7 million during the same quarter in 2002. Foreign currency exchange rates
favorably impacted net sales for the first quarter by approximately $11.9 million.
Net income during the first quarter increased to $42.5 million, versus $30.7 million for the same quarter last year, an increase of 38%. Earnings per diluted share increased to $0.64, compared to $0.45 for the same quarter last year.
Net sales achieved the target of $270 million set by the Company in its previous guidance, and earnings per share exceeded the guidance of $0.54 per share by $0.10.
“We are pleased with our first quarter results,” said Ron Drapeau, Chairman, President and CEO. “Despite problems in the key economies around the world, the outbreak of war in Iraq, and severe bad weather in much of the United States, our shipments were strong. We also managed expenses under prior year levels and benefited from favorable
foreign currency exchange rates. We maintained our #1 market share position in the U.S. in woods, irons and putters. Moreover, we have been able to achieve some major successes on tour, with several weeks where our brand recaptured the #1 position in drivers overall on the
world’s major professional tours, and our Great Big Bertha II Pro Series Driver has often earned the distinction as the #1 driver model on the tours as a whole, and on the U.S. PGA Tour in particular. Callaway Golf golf balls continued as the #2 brand of golf balls in
play on the major professional tours.”
SALES BY PRODUCT AND REGION
First Quarter - 2003
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Net Sales % Change
($ Millions) vs 2002
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Woods $92.9 (12%)
Irons $96.2 15%
Golf Balls $13.7 (39%)
Putters $44.9 75%
Accessories, Other $24.0 22%
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TOTAL $271.7 6%
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United States $149.3 (1%)
International $122.4 16%
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TOTAL $271.7 6%
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Brad Holiday, Executive Vice-President and Chief Financial Officer stated, “We are particularly pleased to report gross margins in the first quarter of 51%, compared with 50% for the first quarter last year. In addition, operating expenses for the quarter were reduced to 26% of net sales, versus 31% for the same quarter last year. Operating income increased 36%, and our balance sheet remains strong with a 21% increase in cash and 17% reduction in inventory versus last year.”
In accordance with the Company’s dividend practice, the next dividend will be determined by the Board of Directors at its next meeting.
“While we are still targeting our previous estimates of annual net sales of approximately $792 million and earnings of about $0.88 per share, we would be remiss if we did not tell you that this year is anything but normal and that business will be anything but easy,” reported Mr. Drapeau. “For one thing, we do not think that sales will
follow normal seasonal patterns where the second quarter tends to be very large and the fourth quarter very small. With our products well positioned at retail due to good sell-in during the first quarter, sales in the second quarter will be largely driven by consumer confidence. The war in Iraq will almost certainly continue to dampen
consumer confidence in the U.S., our largest market, Europe and elsewhere in the second quarter. In addition, it currently appears that concerns over SARS could seriously impact business not only in Asia, but also in other countries, including Canada. These global issues may mean that some of the normal second quarter business may be
impacted or delayed until the third or even the fourth quarters when things hopefully return more to normal and consumer confidence improves. We cannot predict how or if this shift in business will materialize, and therefore are not providing quarterly guidance. In this environment, we do not think that quarterly guidance is meaningful, nor do we think that investors should attempt to measure us based upon such volatile, short-term targets. Instead, we will
continue to provide guidance for the year, with the caveat that quarterly results may likely vary in relative terms from previous years.”
“Over the longer term we continue to target net sales growth, on average, in the low single digits overall, and growth in earnings per share in the low double digits,” continued Mr. Drapeau. “Consistent with our strategic plan, 2003 continues to be a year where we will be funding investments and programs aimed at achieving this longer range growth expectation.”
Callaway Golf Company
Consolidated Condensed Statement of Operations
(in thousands, except per share data)
(unaudited)
Quarter Ended
March 31,
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2003 2002
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Net sales $271,719 100% $256,708 100%
Cost of goods sold 133,882 49% 127,957 50%
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Gross profit 137,837 51% 128,751 50%
Operating expenses:
Selling 48,901 18% 57,299 22%
General and administrative 13,841 5% 13,420 5%
Research and development 6,672 2% 7,882 3%
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Total operating expenses 69,414 26% 78,601 31%
Income from operations 68,423 25% 50,150 20%
Other income (expense), net (1,184) (382)
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Income before income taxes 67,239 25% 49,768 19%
Income tax provision 24,762 19,074
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Net income $42,477 16% $30,694 12%
