Callaway Golf Announces First Quarter 2008 Results
CARLSBAD, Calif.--(BUSINESS WIRE)--May 1, 2008--Callaway Golf Company (NYSE:ELY) today announced its financial results for the first quarter ended March 31, 2008, reporting significant improvements in sales and earnings over the same period a year ago. Highlights for the quarter include:
- Record net sales of $366.5 million, a 10% increase as compared to $334.6 million for the same period in 2007.
- Fully diluted earnings per share of $0.61 on 64.8 million shares as compared to $0.48 on 68.3 million shares in 2007. This represents a 27% increase in diluted earnings per share.
- Fully diluted earnings per share for the first quarter of 2008 and 2007 include $0.01 of after-tax charges for gross margin improvement initiatives announced in November, 2006.
"We are pleased with our results for the first quarter," commented George Fellows, President and CEO. "The improvements made in our product development process and supply chain have positively contributed to our ability to achieve record first quarter sales."
"While cautiously optimistic given our first quarter results," continued Mr. Fellows, "it is important to remember that the second quarter is generally when the consumer purchase cycle begins and it is a critical quarter for us in achieving our targets. We remain optimistic that we can achieve our full year guidance range, although given current macroeconomic and market conditions, we believe our results will most likely be at the lower end of our original range."
Details of First Quarter Results
Sales
The increase in sales for the first quarter is primarily attributable to:
- increased fairway wood sales associated with our FT and FT-i product launches
- increased sales of Odyssey putters driven by our Black Series, Divine Line, and sell-in of our new products
- increased sales of golf balls driven by HX Hot Bite and HX Tour ix products
- increased accessories sales associated with packaged club sets and headwear
- foreign currency exchange rates
Gross Margins
Gross margins as a percentage of net sales were 48% for the first quarter, the same as for the first quarter of 2007. Charges related to the Company's gross margin improvement initiatives did not have a significant effect on gross margins in either period.
The Company continues to benefit from the gross margin initiatives implemented in 2007 which had a positive impact of 130 basis points during the quarter. This benefit was primarily offset by i) an unfavorable shift in product mix due to expected lower second year sales of premium drivers and X-series irons which generally have higher margins than the 2008 new products and ii) higher fixed cost absorption charges related to lower golf ball production volumes during the fourth quarter of 2007. The lower production volumes were consistent with the Company's inventory reduction initiatives and the recent improvements in inventory management and planning, which enables the Company to operate its golf ball business with less inventory on hand. The effect of the fourth quarter production volumes on first quarter results was consistent with the Company's expectations and should not affect the balance of the year. The Company estimates full year gross margins to improve at least 200 basis points compared to 2007.
Operating Expenses
Operating expenses for the quarter were $111 million, an increase of $6 million when compared to 2007. The increase is primarily due to higher advertising and promotion expense to support the new products launched during the quarter, an increase in costs due to the effect of foreign exchange rates on non-U.S. expense, and general inflation. As a percentage of sales, operating expenses declined to 30% compared to 31% in 2007.
Business Outlook
The Company originally estimated in January that its full year 2008 net sales would be in the range of $1.145 to $1.165 billion and that its full year pro forma fully diluted earnings per share would be in the range of $1.08 to $1.18 on an estimated 67 million shares. Pro forma earnings exclude charges related to the Company's gross margin improvement initiatives, currently estimated at $0.08 per share for 2008. While the Company still estimates its financial results will fall within this range, given uncertainties surrounding the economy, second quarter sell-through, and competitive actions, these results are projected at this time to be at the lower end of this range on a base of 66 million shares.
For more details, including pro forma reconciliations to assist in year-over-year comparison, please see the attached "Supplemental Financial Information."
The Company will be holding a conference call at 2:00 p.m. PDT today. The call will be broadcast live over the Internet and can be accessed at www.callawaygolf.com. To listen to the call, please go to the website at least 15 minutes before the call to register and for instructions on how to access the broadcast. A replay of the conference call will be available approximately two hours after the call ends, and will remain available through 9:00 p.m. PDT on Thursday, May 8, 2008. The replay may be accessed through the Internet at www.callawaygolf.com or by telephone by calling 1-800-475-6701 toll free for calls originating within the United States or 320-365-3844 for International calls. The replay pass code is 920536.
Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to estimated sales, gross margins, and earnings for 2008, and the estimated charges for the Company's gross margin initiatives, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These estimates and statements are based upon current information and expectations. Accurately estimating the Company's future financial performance is based upon various unknowns including consumer acceptance and demand for the Company's products as well as future consumer discretionary purchasing activity, which can be significantly adversely affected by unfavorable economic or market conditions. Actual results may differ materially from those estimated or anticipated as a result of these unknowns or other risks and uncertainties, including delays, difficulties or increased costs in the supply of components needed to manufacture the Company's products, in manufacturing the Company's products, or in connection with the implementation of the Company's planned gross margin initiatives or the implementation of future initiatives; adverse weather conditions and seasonality; any rule changes or other actions taken by the USGA or other golf association that could have an adverse impact upon demand or supply of the Company's products; a decrease in participation levels in golf; and the effect of terrorist activity, armed conflict, natural disasters or pandemic diseases on the economy generally, on the level of demand for the Company's products or on the Company's ability to manage its supply and delivery logistics in such an environment. For additional information concerning these and other risks and uncertainties that could affect these statements and the Company's business, see Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2007, as well as other risks and uncertainties detailed from time to time in the Company's reports on Forms 10-Q and 8-K subsequently filed from time to time with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
About Callaway Golf
Through an unwavering commitment to innovation, Callaway Golf Company (NYSE:ELY) creates products and services designed to make every golfer a better golfer. Callaway Golf Company manufactures and sells golf clubs and golf balls, and sells golf accessories, under the Callaway Golf(R), Odyssey(R), Top-Flite(R), and Ben Hogan(R) brands in more than 110 countries worldwide. For more information please visit www.callawaygolf.com or Shop.CallawayGolf.com.
Callaway Golf Company
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
March 31, December 31,
2008 2007(1)
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 39,385 $ 49,875
Accounts receivable, net 300,495 112,064
Inventories, net 264,319 253,001
Deferred taxes 42,512 42,219
Income taxes receivable - 9,232
Other current assets 33,377 30,190
----------- ------------
Total current assets 680,088 496,581
Property, plant and equipment, net 131,584 128,036
Intangible assets, net 172,735 173,045
Deferred taxes 19,094 18,885
Other assets 39,799 40,416
----------- ------------
$1,043,300 $ 856,963
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 159,124 $ 130,410
Accrued employee compensation and benefits 30,204 44,245
Accrued warranty expense 12,990 12,386
Credit facilities 155,570 36,507
Income taxes payable 10,549 -
----------- ------------
Total current liabilities 368,437 223,548
Long-term liabilities 63,512 63,207
Minority interest 1,526 1,978
Shareholders' equity 609,825 568,230
----------- ------------
$1,043,300 $ 856,963
=========== ============
(1)Prior period amounts have been reclassified to conform with the
current period classification.
Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended
March 31,
---------------------------
2008 2007
----------- ----------
Net sales $ 366,452 100% $334,607 100%
Cost of sales 190,918 52% 173,886 52%
----------- ----------
Gross profit 175,534 48% 160,721 48%
Operating expenses:
Selling expenses 80,161 22% 75,291 23%
General and administrative expenses 22,488 6% 21,558 6%
Research and development expenses 7,924 2% 8,016 2%
----------- ----------
Total operating expenses 110,573 30% 104,865 31%
Income from operations 64,961 18% 55,856 17%
Other income (expense), net 695 (1,338)
----------- ----------
Income before income taxes 65,656 18% 54,518 16%
Income tax provision 25,990 21,682
----------- ----------
Net income $ 39,666 11% $ 32,836 10%
=========== ==========
Earnings per common share:
Basic $ 0.62 $ 0.49
Diluted $ 0.61 $ 0.48
Weighted-average shares outstanding:
Basic 63,895 67,272
Diluted 64,843 68,318
Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Quarter Ended
March 31,
---------------------
2008 2007(1)
---------- ----------
Cash flows from operating activities:
Net income $ 39,666 $ 32,836
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 8,794 9,009
Deferred taxes 8,521 (538)
Non-cash compensation 1,468 3,127
(Gain)/loss on disposal of assets (230) 3
Changes in assets and liabilities (179,600) (122,057)
---------- ----------
Net cash used in operating activities (121,381) (77,620)
---------- ----------
Cash flows from investing activities:
Capital expenditures (11,732) (7,987)
---------- ----------
Net cash used in investing activities (11,732) (7,987)
---------- ----------
Cash flows from financing activities:
Issuance of Common Stock 2,767 12,833
Acquisition of Treasury Stock (72) (15,155)
Net proceeds from line of credit 119,063 75,000
Other financing activities (254) 951
---------- ----------
Net cash provided by financing activities 121,504 73,629
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents 1,119 210
Net decrease in cash and cash equivalents (10,490) (11,768)
Cash and cash equivalents at beginning of period 49,875 46,362
---------- ----------
Cash and cash equivalents at end of period $ 39,385 $ 34,594
========== ==========
(1)Prior period amounts have been reclassified to conform with the
current period classification.
Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)
Net Sales by Product Category
------------------------------------
Quarter Ended
March 31, Growth/(Decline)
------------------- ----------------
2008 2007(1) Dollars Percent
--------- --------- -------- -------
Net sales:
Woods $116,552 $103,065 $13,487 13%
Irons 96,496 100,100 (3,604) -4%
Putters 34,554 29,083 5,471 19%
Golf balls 58,433 53,548 4,885 9%
Accessories and other 60,417 48,811 11,606 24%
--------- --------- --------
$366,452 $334,607 $31,845 10%
========= ========= ========
(1)Prior period amounts have been reclassified to conform with the
current period classification.
Net Sales by Region
------------------------------------
Quarter Ended
March 31, Growth/(Decline)
------------------- ----------------
2008 2007(1) Dollars Percent
--------- --------- -------- -------
Net sales:
United States $184,380 $183,804 $ 576 0%
Europe 66,090 56,023 10,067 18%
Japan 53,339 37,940 15,399 41%
Rest of Asia 26,461 22,821 3,640 16%
Other foreign countries 36,182 34,019 2,163 6%
--------- --------- ------
$366,452 $334,607 $31,845 10%
========= ========= ========
Operating Segment Information
------------------------------------
Quarter Ended
March 31, Growth/(Decline)
------------------- ----------------
2008 2007(1) Dollars Percent
--------- --------- -------- -------
Net sales:
Golf clubs $308,019 $281,059 $26,960 10%
Golf balls 58,433 53,548 4,885 9%
--------- --------- --------
$366,452 $334,607 $31,845 10%
========= ========= ========
Income before provision
for income taxes:
Golf clubs $ 76,199 $ 65,343 $10,856 17%
Golf balls 4,445 5,728 (1,283) -22%
Reconciling items (1) (14,988) (16,553) 1,565 9%
--------- --------- --------
$ 65,656 $ 54,518 $11,138 20%
========= ========= ========
(1) Represents corporate general and administrative expenses and other
income (expense) not utilized by management in determining segment
profitability.
Callaway Golf Company
Supplemental Financial Information
(In thousands, except per share data)
(Unaudited)
Quarter Ended March 31,
------------------------------------------
2008
------------------------------------------
Gross Margin
Pro Forma Improvement Total as
Callaway Golf Initiatives Reported
--------------- ------------- ------------
Net sales $ 366,452 $ - $366,452
Gross profit 176,629 (1,095) 175,534
% of sales 48% n/a 48%
Operating expenses 110,573 - 110,573
--------------- ------------- ----------
Income from operations 66,056 (1,095) 64,961
Other income (expense), net 695 - 695
--------------- ------------- ----------
Income (loss) before income
taxes 66,751 (1,095) 65,656
Income tax provision 26,412 (422) 25,990
------------- ----------- ----------
Net income $ 40,339 $ (673) $ 39,666
==============- ===========-- ==========
Diluted earnings (loss) per
share: $ 0.62 $ (0.01) $ 0.61
Weighted-average shares
outstanding: 64,843 64,843 64,843
Quarter Ended March 31,
-----------------------------------------
2007
-----------------------------------------
Gross Margin
Pro Forma Improvement Total as
Callaway Golf Initiatives Reported
-------------- ------------- ------------
Net sales $ 334,607 $ - $ 334,607
Gross profit 162,126 (1,405) 160,721
% of sales 48% n/a 48%
Operating expenses 104,865 - 104,865
------------- ------------ ------------
Income from operations 57,261 (1,405) 55,856
Other income (expense), net (1,338) - (1,338)
------------- ------------ ------------
Income (loss) before income
taxes 55,923 (1,405) 54,518
Income tax provision 22,236 (554) 21,682
------------- ------------ ------------
Net income $ 33,687 $ (851) $ 32,836
============= ============ ============
Diluted earnings (loss) per
share: $ 0.49 $ (0.01) $ 0.48
Weighted-average shares
outstanding: 68,318 68,318 68,318
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA):
2008 Trailing Twelve Months EBITDA
-------------------------------------------------------
Quarter Ended
-------------------------------------------------------
June 30, September 30, December 31, March 31,
2007 2007 2007 2008 Total
-------- ------------- ----------- --------- --------
Net income
(loss) $36,639 $ 1,269 $(16,157) $39,666 $ 61,417
Interest
expense
(income), net 1,672 29 (216) 591 2,076
Income tax
provision
(benefit) 23,591 830 (12,415) 25,990 37,996
Depreciation
and
amortization
expense 8,591 9,864 7,862 8,794 35,111
-------- ------------ ----------- -------- --------
EBITDA $70,493 $11,992 $(20,926) $75,041 $136,600
======== ============ =========== ======== ========
2007 Trailing Twelve Months EBITDA
-----------------------------------------------------
Quarter Ended
-----------------------------------------------------
June 30, September 30, December 31, March 31,
2006 2006 2006 2007 Total
-------- ------------- ------------ --------- -------
Net income
(loss) $22,539 $(11,916) $(10,194) $32,836 $33,265
Interest
expense
(income), net 1,522 1,132 905 1,677 5,236
Income tax
provision
(benefit) 14,934 (6,075) (10,948) 21,682 19,593
Depreciation
and
amortization
expense 7,935 8,736 8,313 9,009 33,993
-------- ------------ ----------- -------- -------
EBITDA $46,930 $ (8,123) $(11,924) $65,204 $92,087
======== ============ =========== ======== =======
CONTACT:
Callaway Golf Company
Brad Holiday
Patrick Burke
Michele Szynal
760-931-1771
SOURCE: Callaway Golf Company