The golf club and accessories product maker Callaway Golf Company’s (ELY) shares slipped 1.5% in the trading session on Jul 24, as lower-than-expected year-over-year sales dampened investors’ confidence. Carlsbad, CA-based Callaway Golf reported earnings of 4 cents per share on Jul 23 which missed the Zacks Consensus Estimate by 33.3%. The results declined from the year-ago earnings of 12 cents due to lower sales.
Revenues and Profit
Net sales in the reported quarter came in at $231.8 million and missed the Zacks Consensus Estimate of $248.0 million by 6.8%. Sales also missed year-ago results by 7.1% due to slowdown in the markets as a result of inclement weather throughout the U.S. Sales in Asia were also limited due to slow start in Japan, where retail environment was tough during the quarter.
Despite an 8.4% year-over-year decline in cost of sales, gross profit declined 5.1% to $90.8 million due to lower sales. Operating income during the quarter dipped 5.8% year over year to $10.8 million, down 5.8% year over year in spite of lower selling and administrative expenses.
Segment Details
While net sales in Woods, Iron and Golf balls declined 27%, 4% and 9%, respectively, results were favorable in Putters and Accessories as net sales in these business categories climbed a respective of 20% and 5% year over year. Products like Big Bertha drivers, Apex irons, X2 Hot Fairway woods and hybrids and Supersoft golf ball gained significant market share during the quarter.
Net sales in most of the geographic regions like the United States, Europe, Japan and other foreign countries experienced a year-over-year decline. However, Rest of Asia geographic segment reported a solid 10% gain in net sales backed by strong sales in Korea, Canada and Australia.
Guidance for 2014
Management anticipates market conditions to remain challenging through the balance of this year, but is expected to offset through product innovation and brand momentum. For 2014, the company affirmed its earnings per share expectation in the range of 12–16 cents, compared with a loss of 31 cents incurred in the year-ago period.
The company expects sales in the range of $880–$900 million compared with $843 million recorded in 2013. Gross margins are estimated to improve to approximately 41.7%, compared with 37.3% in 2013.
Stocks to Consider
Callaway currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Marine Products Corporation (MPX), Polaris Industries Inc. (PII) and Malibu Boats Inc. (MBUU). While Marine Products sports a Zacks Rank #1(Strong Buy), Polaris Industries and Malibu Boats have a Zacks Rank #2 (Buy).
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