True Temper Sports, Inc. saw net sales for the second quarter decrease 5.8% to $30.7 million from $32.6 million last year. Net sales for the first six months of 2006 have held relatively stable at $62.3 million as compared to $64.7 million in the first six months of 2005; a decline of 3.6%. Adjusted EBITDA for the second quarter decreased to $7.6 million from $10.2 million in the second quarter of 2005. Adjusted EBITDA for the first six months decreased to $16.3 million from $19.8 million in the first six months of 2005. The company recorded a net loss for the 2006 second quarter and year-to-date periods of $1.7 million and $2.0 million, respectively. During the comparable periods in 2005 net income was $0.6 million and $0.8 million, respectively.
In his comments about the Companys performance, Scott Hennessy, President and CEO said, “While we are never pleased to report a quarterly sales decline, given the industry backdrop during this first half of 2006 our overall revenue performance has been in-line with our expectations. We continue to face a challenging golf market, with a general lack of new product momentum, particularly in the iron category. This industry factor creates somewhat of a revenue challenge for us, as our market-share in the steel shafted iron category is substantial. Offsetting this cyclical decline in premium steel golf sales is the continued momentum in our graphite golf category and performance sports business, both of which delivered double digit percentage gains in revenue for the second quarter and year-to-date periods. Our graphite golf shaft revenue marked the largest second quarter in the companys history, behind the strength of our Grafalloy ProLaunch TM line and the new stock OEM business we have secured during the past 12 months; while our diversification into the hockey and cycling markets has provided the engine of growth to deliver the strongest first half performance sports sales in over ten years. The top-line growth in these areas positions us very well going forward, as our base steel golf business rebounds in the future.”
Mr. Hennessy continued, “While the shift in sales mix has enabled us to maintain relatively stable revenue performance, it has had some impact on our gross profit margins as these growing categories deliver solid, but somewhat lower gross profit than our base premium steel business. Compounding this mix shift has been the continued commodity cost pressure and higher energy prices that we experienced during the first quarter of the year. In response to these issues we have initiated a number of productivity and cost control measures throughout our organization. Many of these programs target productivity and quality improvements in our manufacturing and supply chain, while others are specifically focused on reducing the fixed overhead infrastructure of our company on a worldwide basis. One significant project in this area is the final downsizing of our southern California location to be more consistent with our engineering and distribution focus from this facility. These efforts will provide a cost structure that positions us well for future growth and profitability.”
Commenting about the Companys outlook for the future, Mr. Hennessy said, “We had anticipated that revenue for the first half of 2006 would be flat to down slightly, as the market awaited new iron launches from the major golf OEMs. As we look to the back half of 2006 we do anticipate some improvement, as these new iron launches serve to increase our unit volume; however, it remains to be seen how well received these products will be in a somewhat sluggish overall golf environment. Further benefiting our revenue and overall operations during the second half, as we announced in June, we have acquired certain assets from Royal Precision, a former competitor that has recently exited the steel golf shaft market. We are working diligently to integrate this production capacity and capability into our existing facilities, with the goal of seamlessly continuing the production, sales and distribution of the Rifle TM , Project X TM and other sought after brands that have developed a strong following in the golf industry. We are confident that our new products, ongoing professional golf tour success and other market initiatives will enable us to maximize our potential revenue in this challenging retail marketplace.”
Mr. Hennessy continued, “From a profitability basis, we have seen some easing in our energy costs during the third quarter, as well as somewhat more favorable foreign currency exchange rates. In addition to this, we also anticipate an improvement in our overall product sales mix during the second half of 2006. These factors should help to reduce the continuing impact of the commodity inflation we are experiencing in raw materials for both steel and graphite products. When coupled with our internal cost containment and productivity initiatives, we expect overall gross profit margins to be relatively flat to slightly improved from the first half levels. We will continue to keep tight controls over SG&A spending as we observe the sell-through of our OEM partners new product launches during the back half of the year.”