Global Edition

 

Callaway CEO: ‘Recovery Slower than Expected’

1.40am 30th July 2010 - Corporate

Callaway Golf Company (NYSE:ELY) today announced its financial results for the second quarter and first half of the year ended June 30, 2010, which were consistent with the Company’s June 14th guidance.

For the second quarter, the Company reported:

  • Net sales of $304 million, an increase of 1% compared to $302 million for the second quarter of 2009. Changes in foreign currency rates favorably affected net sales by $6 million in the second quarter of 2010 compared to the same period in 2009.
  • Gross profit of $124 million (41% of net sales), compared to gross profit of $110 million (36% of net sales) for the second quarter of 2009.
  • Operating expenses for the quarter of $99 million (32% of net sales) compared to $100 million (33% of net sales) for the same period in 2009.
  • Operating profit of $25 million (8% of net sales) compared to $10 million (3% of net sales) for the same period in 2009.
  • Earnings per diluted share of $0.14 (on 84.3 million weighted average shares outstanding), compared to $0.10 (on 66.8 million weighted average shares outstanding) in 2009.  Fully diluted earnings per share for the second quarter include after-tax charges for the Company’s Global Operations Strategy initiatives of $0.01 per share in 2010 and $0.02 per share in 2009.

For the first six months, the Company reported:

  • Net sales of $606 million, an increase of 6% compared to last year’s net sales of $574 million. Changes in foreign currency rates favorably affected net sales by $21 million for the first six months of 2010 compared to the same period in 2009.
  • Gross profit of $261 million (43% of net sales) compared to $226 million (39% of net sales) for 2009.
  • Operating expenses of $207 million (34% of net sales) compared to $202 million (35% of net sales) for 2009.
  • Operating profit of $53 million (9% of net sales) compared to $24 million (4% of net sales) for 2009.
  • Earnings per diluted share of $0.38 (on 84.1 million weighted average shares outstanding) compared to earnings per diluted share of $0.21 (on 65.1 million weighted average shares outstanding) for 2009. Fully diluted earnings per share for the period include after-tax charges for the Company’s Global Operations Strategy initiatives of $0.02 per share in 2010 and $0.03 per share in 2009.

“Global economic conditions and the golf industry have recovered more slowly than our original expectations coming into 2010,” commented George Fellows, President and CEO.

“Consumer spending remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit. These constraints, together with unfavorable weather conditions in many key markets for a significant portion of 2010, have resulted in an overall decline in sales in the golf industry for the year. Despite this industry decline, our first half results have improved over last year, driven in large part by our improved gross margins, more favorable foreign currency rates, and significant growth in our putters and accessories businesses.”

“While the golf industry will recover, given recent increased uncertainty regarding retailer and consumer spending in the back half of the year, it does not appear that the industry will fully recover during 2010,” continued Mr. Fellows. “We are therefore focused on the controllable portions of our business, including tight management of discretionary spending, investment in emerging markets and other key growth initiatives to drive long-term shareholder value, and improvements in our operations such as the restructuring of our global operations announced yesterday.

“hese actions, together with the strength of our brands, will allow us to maximize results in the current environment and prepare us to take advantage of a better market once global conditions improve.”

Restructuring of Global Operations

The Company announced yesterday that it will be restructuring its global operations over the next 18 months as a part of its overall Global Operations Strategy to add speed and flexibility to customer service demands, optimize efficiencies and facilitate long-term gross margin improvements.

This initiative will include the reorganization of the Company’s manufacturing and distribution centers located in Carlsbad, California and Toronto, Canada and the creation of third party logistics sites in Dallas, Texas and Toronto, Canada as well as the establishment of a new production facility in Monterrey, Mexico.

Business Outlook

“While we expect that our overall financial results will be better than last year, the unusual uncertainty caused by the current macroeconomic and market conditions make it impossible to forecast retailer and consumer demand for golf products with any reliability,” commented Brad Holiday, Chief Financial Officer of the Company.

“We do expect that our full year gross margins will be improved compared to last year and that our full year operating expenses will be approximately flat compared to last year, even after taking into account the restoration of employee compensation and benefits that were temporarily suspended in 2009. Because of the lack of visibility into sales, however, we are not providing specific financial guidance for the balance of the year.”

The Company previously estimated that charges for 2010 for its overall Global Operations Strategy initiatives would be approximately $.10 per share. The scope of the initiatives has been expanded and the Company now estimates that charges for such initiatives in 2010 will be approximately $0.16 per share.

Given the expanded scope of the initiatives, the Company now estimates that the savings from its overall Global Operations Strategy initiatives will be approximately $45-$55 million from 2010-2013 as compared to its prior estimate of $25-$45 million through 2012.

Callaway Golf Company www.callawaygolf.com

       

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