True Temper Sports, Inc. saw its third quarter net sales decreased 15.8% to $21.5 million from $25.5 million in the year-ago quarter. Adjusted EBITDA for the third quarter decreased to $4.3 million from $7.6 million in the third quarter of 2005. The company recorded a net loss of $4.1 million for the 2006 third quarter after a loss of $0.7 million last year.
Net sales for the first nine months of 2006 decreased 7.1%, to $83.8 million from the $90.2 million recorded during the first nine months of 2005. Adjusted EBITDA for the first nine months decreased to $20.6 million from $27.4 million in the first nine months of 2005. For the year-to-date period, the company reported a net loss of $6.1 million after net income of $0.1 million last year.
In his comments about the Companys performance, Scott Hennessy, President and CEO said, “The golf industry as a whole continues to languish somewhat in 2006. The number of new product launches from the market leading OEMs is lower than the previous year, and also below expectations coming into the year as some launches have now been repositioned for 2007. This cyclical downturn has been most prevalent in the iron and putter categories, as the major brands have implemented various promotions in the driver and fairway wood categories in an effort to spur demand for those products. As a result, our most significant unit volume decline has been in the premium steel product group, where most of the shafts sold are used in higher end iron sets. Of course, we are quite disappointed with our overall revenue performance through the first three quarters of 2006, but we do believe it is in line with the general market conditions for the industry, and despite the overall weakness there are actually several success stories buried beneath the surface. Our graphite golf sales for the first nine months are at a five year high, riding the success of our Grafalloy ProLaunch TM series of high performance driver and iron shafts, and the success we have had in securing new stock OEM business during the past 12 to 18 months. In addition, our year-to-date sales of performance sports products are up nearly 30% as our strategic diversification into the hockey and cycling markets continues to gain momentum.”
Mr. Hennessy continued, “With this overall decline in revenue we have seen a corresponding impact to our profitability; however, the impact has been significantly exacerbated by two factors. First, the categories hardest hit by the recent golf industry malaise have been irons and putters, which creates a somewhat unfavorable product mix shift for True Temper, as our premium steel shafts are used in these types of clubs. Second, we have been faced with the same commodity and energy price inflation that has negatively affected the industry and overall economy during 2006. Prices for steel, nickel, carbon fiber and natural gas have all tracked substantially higher than the comparable periods in 2005. We have reacted to these pressures on our profitability by enacting a number of productivity and cost control programs throughout our organization. In some instances we are simply tightening our belt during this temporarily challenging environment, and in others we are actually changing the way we do business to be more cost efficient in future periods.”
Commenting about the companys outlook for the future, Mr. Hennessy said, “From a revenue and unit sales volume perspective, the back half of 2006 has simply not shaped up as we or the industry had hoped. The challenging market conditions that have been prevalent since the early part of the year have continued to cast a shadow over the golf market and, as a result, our performance. The lack of exciting new product introductions in the golf equipment category will continue to affect our revenue through the fourth quarter; however, we do see some relief as we transition into 2007. At this time, it would appear that both the number and quality of new introductions slated for 2007 is far above the current year levels. While it is impossible to predict with certainly how the market will receive these new launches, we can say with confidence that we have never seen two consecutive years of weak market conditions for golf clubs. This fact, along with the insight we have into the major new launches scheduled at some of the golf industrys biggest brands, gives us confidence that 2007 will be a rebound year for both golf in general and for True Temper specifically. In addition, we have several new shaft introductions planned, and the growth we are currently experiencing in our performance sports business is expected to progress throughout 2007, as we continue to secure new customers and take additional marketshare in the hockey and cycling categories.”
Mr. Hennessy continued, “The impact that the unit volume, product mix and commodity inflation has had on our bottom line during 2006 is simply unacceptable. While some of the factors are outside of our control, we will be responding by redoubling our efforts in those areas that are under our control. The productivity, quality and cost reduction initiatives we are currently implementing should yield beneficial results throughout 2007 and beyond, as we position the company to operate more efficiently in all market conditions. In addition, we are anticipating some moderation in the negative impact from foreign currency fluctuations and commodity inflation during the coming year, as compared to the challenges faced in 2006. Along with the results of our current cost control efforts, this should provide for improvements in gross profit and Adjusted EBITDA during 2007 and for several years thereafter. As we move forward into 2007, we will be in a position to describe these key initiatives in more detail in future releases.”