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Will Callaway Golf (ELY) Surprise This Earnings Season?

Zacks Equity Research

Callaway Golf Company (ELY) is set to report second-quarter fiscal 2014 results on Jul 24. Last quarter, the golf club and ball manufacturer delivered a positive surprise of 38.6%. Let us see how things are shaping up for this announcement.

Factors to Be Considered This Quarter

Callaway Golf has been reporting decent earnings results for the past few quarters backed by its strong product line and several strategic initiatives to boost its top line.

However, the company has been facing several short-term challenges for the past few months. Callaway Golf has witnessed soft sales as the market slowed down during the last few months due to inclement weather throughout the U.S. Moreover, retailers are trying to clear the piled up inventory that had resulted due to soft sales in the previous months. They are trying to do so by giving high discounts which has led to a difficult pricing and promotional environment in the industry.

These macroeconomic headwinds have prompted management to provide a cautious outlook for the second quarter. The company expects earnings per share growth in the range of breakeven to slightly profitable during the quarter compared with an earnings growth of 12% in the prior-year quarter. Sales are expected to be flat to down 5% year over year during the quarter.

However, management is geared to strengthen its product line by continuous innovations and marketing initiatives. Moreover, improved weather is should boost the company’s volumes in the second quarter.

Earnings Whispers?

Our proven model does not conclusively show that Callaway Golf is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:

Zacks ESP: ESP for Callaway Golf is 0.00%.

Zacks Rank: Callaway has a Zacks Rank #2 (Buy) which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies that investors may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

The J. M. Smucker Company (SJM), with an Earnings ESP of +1.46% and a Zacks Rank #3 (Hold).

Dr Pepper Snapple Group, Inc. (DPS), with an Earnings ESP of +3.30% and a Zacks Rank #3.

The Coca Cola Company (KO), with an Earnings ESP of +4.76% and a Zacks Rank #3.

Read the Full Research Report on ELY
Read the Full Research Report on KO
Read the Full Research Report on DPS
Read the Full Research Report on SJM

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