Global Edition

Callaway Golf expects wider loss in third quarter

1.00am 20th October 2006 - Corporate

Callaway Golf Company (NYSE:ELY) has announced preliminary results for the third quarter ended September 30, 2006. Based on current information, net sales are expected to range from $193 million to $195 million, with a corresponding loss per diluted share ranging from $0.17 to $0.19. This estimated loss includes after-tax charges of $0.01 per diluted share associated with the Top-Flite integration and $0.01 per diluted share for the restructuring initiatives announced in September 2005.
For the third quarter of 2005, the Company reported net sales of $221 million, a fully diluted loss per share of $0.07 and pro forma fully diluted earnings per share of $0.01, which excludes after-tax charges of $0.02 for the Top-Flite integration and $0.06 related to the restructuring initiatives.
“Sales of the Company’s core brands, Callaway and Odyssey, have gained market share and top-line momentum in 2006,” commented George Fellows, President and CEO of Callaway Golf. “Over the first nine months of this year, sales of these products have increased 7% adding to the double digit growth experienced in 2005. Sales of the Top-Flite and Hogan products, however, have not performed to expectations and have offset the gains in our core brands. As discussed last quarter, we are in the process of restoring these brands, targeting a formal re-launch of Top-Flite in 2007.”
“In terms of profitability,” Fellows continued, “the two-staged approach we announced a year ago is well underway. The first stage, which targeted a gross reduction of operating expenses of $50 to $60 million in the first year, or $25 to $30 million net of reinvestment, has been more successful than initially expected. In fact, over the last twelve months we have realized approximately $44 million in savings net of reinvestment. The second stage will target gross margins, which have been at unacceptable levels in recent years. This margin performance was further impacted this year by some additional factors related to the Top-Flite business, including an inventory reduction initiative of older Top-Flite products in preparation for the re-launch of the Top-Flite brand. We recognize the importance of improving gross margins as it relates to our overall profitability, and have already begun implementing initiatives which are expected to significantly improve gross margins in 2007 and beyond, as we will discuss in greater detail on our upcoming conference call.”
The Company estimates that its operating expenses for the quarter will be approximately $85 million. Excluding charges related to equity-based compensation, the Top-Flite integration and the September 29, 2005 restructuring initiatives, pro forma operating expenses are estimated to be approximately $81 million, a reduction of approximately $10 million when compared to last year’s third quarter. The reduction is primarily due to the restructuring initiatives that were announced on September 29, 2005.
The Company will release actual third quarter financial results on November 1, 2006. A conference call and webcast will also take place at that time.
Callaway Golf Company

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