Callaway Golf (ELY) Incurs Narrower Q3 Loss; Ups FY View
Higher market share has always been a key to Callaway Golf Company’s (ELY) success and third quarter fiscal 2014 reported on Oct 23, 2014 was no exception. During the third quarter Callaway Golf posted higher than expected sales and narrower loss backed by higher margins.
The golf club and accessories product maker reported better than expected sales during the third quarter fiscal 2014 backed by higher market share. The company also upped its fiscal 2014 guidance following decent earnings results during the quarter.
Carlsbad, CA-based Callaway Golf reported loss of 1 cent per share on Oct 23. Loss was narrower than the Zacks Consensus Estimate of a loss of 28 cents. Results also improved compared with a loss of 32 cents in the year-ago quarter.
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Revenues and Profit
Net sales in the reported quarter came in at $169.0 million and surpassed the Zacks Consensus Estimate of $156.0 million by 8.3%. Sales, however, declined from the year-ago results of $178 million by 5% due to continued industry softness.
Gross profit increased 9.9% to $65.3 million on the back of 13.1% year-over-year decline in cost of sales. Operating loss during the quarter came in at $2.6 million narrower than a loss of $17 million backed by high gross margin, lower operating expenses and favorable foreign currency movement.
Segment Details
While net sales in Woods, Iron, Putters and Golf balls declined 3%, 5%, 31% and 3%, respectively, results were favorable in the Accessories segment as net sales climbed 2% year over year. Products like Big Bertha Alpha Drivers, the Big Bertha Irons and Hybrids performed well during the quarter.
Net sales in most of the geographic regions like the Europe, Japan and Rest of Asia declined year over year due to challenging market conditions. However, United States and Other Foreign countries reported 11% and 2% gain, respectively.
Guidance for 2014
For fiscal 2014, management anticipates growth rate of earnings to exceed the overall market and be driven by brand momentum and market share gains. Decent results in the second quarter prompted management to raise guidance during the quarter. For 2014, the company raised its earnings per share expectation to a range of 15–18 cents from 12–16 cents guided earlier. The company incurred a loss of 31 cents in the year-ago period.
Callaway expects sales of $890 million as against a range of $880–$900 million announced previously. The company had reported $843 million sales in 2013. It, however, lowered the gross margin guidance to 41% from 41.7%. In 2013, Callaway reported gross margin of 37.3% due to higher cost of sales following several product launches.
Fiscal 2015
Callaway expects industry conditions to improve and it also expects to grow its market share in fiscal 2015. However, it expects foreign currency headwinds during the period. It expects net sales to grow 1%-2% on a consolidated basis in 2015. Callaway also expects steady improvement in its profitability in 2015.
Stocks to Consider
Callaway currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Polaris Industries Inc. (PII) and Malibu Boats Inc. (MBUU). While Malibu Boats sports a Zacks Rank #1 (Strong Buy), Polaris Industries carries a Zacks Rank #2 (Buy). Another stock, Hanesbrands Inc. (HBI)- sports apparel maker carries a Zacks Rank #1 (Strong Buy)
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