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Callaway Golf Company Reports Operating Results (10-Q)

November 03, 2009 | About:
10qk

10qk

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Callaway Golf Company (ELY) filed Quarterly Report for the period ended 2009-09-30.

Callaway Golf Company is designs develops manufactures and markets high quality innovative golf clubs. The Company's golf clubs are sold at premium prices to both average and skilled golfers on the basis of performance ease of use and appearance. Callaway Golf Company has a market cap of $449.4 million; its shares were traded at around $6.97 with and P/S ratio of 0.4. The dividend yield of Callaway Golf Company stocks is 0.6%.

Highlight of Business Operations:

The adverse effects of the weak global economy coupled with unfavorable changes in foreign currency exchange rates continued to negatively affect the Companys net sales throughout the third quarter of 2009, which contributed to a $22.6 million (11%) decrease in net sales to $190.9 million compared to $213.5 million in the third quarter of 2008. This decrease reflects a $15.1 million decline in net sales of the Companys golf clubs segment and a $7.5 million decline in net sales of the Companys golf balls segment as presented below (dollars in millions):

For the third quarter of 2009, gross profit decreased $20.5 million to $59.6 million from $80.1 million in the third quarter of 2008. Gross profit as a percentage of net sales (gross margin) decreased to 31% in the third quarter of 2009 compared to 38% in the third quarter of 2008. The decrease in gross margin is primarily attributable to the unfavorable economic conditions and the resulting reduction in sales volume during the third quarter of 2009, as well as the impact of sales promotions and price reductions taken on drivers and irons that were in the second year of their product lifecycles, and unfavorable changes in foreign currency rates. These declines were partially offset by cost reductions on golf club component costs combined with more cost efficient golf club designs, as well as an overall improvement in manufacturing efficiencies as a result of the Companys gross margin improvement initiatives. See Segment Profitability below for further discussion of gross margins. Gross profit for the third quarter of 2009 was negatively affected by charges of $0.9 million related to the Companys gross margin improvement initiatives compared to $3.6 million for the comparable period in 2008.

Selling expenses decreased $8.7 million (13%) to $57.0 million in the third quarter of 2009 compared to $65.7 million in the comparable period of 2008. As a percentage of net sales, selling expenses decreased to 30% in the third quarter of 2009 compared to 31% in the third quarter of 2008. The dollar decrease in selling expenses was primarily due to cost reductions taken by the Company during the third quarter of 2009, which included a decrease of $6.3 million in advertising and promotional activities as well as decreases in travel and entertainment and consulting expenses.

Other income (expense) improved by $2.5 million in the third quarter of 2009 to other income of $0.8 million compared to other expense of $1.7 million in the comparable period of 2008. This improvement is primarily attributable to an increase of $1.2 million in the Companys deferred compensation plan asset value resulting from favorable changes in the market, and an increase of $0.9 million as a result of net foreign currency gains reported in the third quarter of 2009 compared to net foreign currency losses reported in the third quarter of 2008.

Net loss for the third quarter of 2009 decreased to $13.4 million from $7.4 million in the comparable period of 2008. Diluted loss per share declined to $0.25 per share in the third quarter of 2009 compared to $0.12 per share in the third quarter of 2008. Net loss and loss per share for the third quarter of 2009 were negatively affected by after-tax charges of $0.6 million ($0.01 per share) related to costs incurred in connection with the Companys gross margin initiatives. In addition, net loss allocable to common shareholders and loss per share for the third quarter of 2009 were negatively affected by dividends on convertible preferred stock of $2.6 million ($0.04 per share). Net loss and loss per share for the third quarter of 2008 were negatively affected by $2.2 million ($0.04 per share) related to costs incurred in connection with the Companys gross margin initiatives.

The weak global economy and its continued adverse effects on the golf industry in general, in addition to unfavorable foreign currency exchange rates, contributed to a decline in net sales of $181.0 million (19%) to $764.9 million for the nine months ended September 30, 2009 compared to $945.9 million for the comparable period in the prior year. This decrease reflects a $146.4 million decline in net sales of the Companys golf clubs segment and a $34.6 million decline in net sales of the Companys golf balls segment as indicated below (dollars in millions):

Read the The complete ReportELY is in the portfolios of Kenneth Fisher of Fisher Asset Management, LLC, Kenneth Fisher of Fisher Asset Management, LLC.

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10qk
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