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Category: Stock Market and Callaway Golf
Date: 8 May 2020 Stock Price: $13.53 We take a look at the 1st quarter earnings release of their 2020 fiscal year of Callaway, a golf equipment manufacturer and seller. It also owns brands such as Jack Wolfskin and Odyssey
We are pleased that during the first quarter of 2020 our golf equipment market shares remained strong in all of our major markets and that we were able to deliver a profitable quarter despite the negative impact of COVID-19 " |
About Callaway Golf Company
Callaway Golf Company (NYSE: ELY) is a premium golf equipment and active lifestyle company with a portfolio of global brands, including Callaway Golf, Odyssey, OGIO, TravisMathew and Jack Wolfskin. Through an unwavering commitment to innovation, Callaway manufactures and sells premium golf clubs, golf balls, golf and lifestyle bags, golf and lifestyle apparel and other accessories.
Overview of Callaway Golf 1st quarter 2020 earnings report
The data below refers to the most recent quarter unless specified otherwise
- Total Revenues: $442.276 million (down from $516.197 million from the same quarter of the previous year)
- Revenue decreased by -14.3% over the last 12 months
- Cost of sales: $246.602 million (up from $277.764 million for the same quarter of the previous year)
- Cost of sales decreased by -11.2% over the last 12 months
- Some margin pressure was experienced by Callaway Golf with their revenues declining at a faster rate than their cost of sales
- Net earnings: $28.894 million (down from $48.647 million for the same quarter of the previous year)
- Diluted earnings per share: $0.30 (down from $0.50 for the same quarter of the previous year)
- PE ratio of Callaway Golf: 22
- Diluted weighted-average shares outstanding: 95.676 million (down from 96.419 million for the same quarter of the previous year)
- Cash and cash equivalents: $166.635 million
- Cash and cash equivalents per share: $1.74
- Cash and cash equivalents makes up 12.9% of Callaway Golf market capital
- Cash and cash equivalents makes up 17.8% of Callaway Golf total assets
- Inventories of Callaway Golf: $412.690 million
- Inventories makes up 19.6% of Callaway Golf total assets
- Stockholders equity in Callaway: $759.967 million
- Stockholders equity per share in Callaway Golf: $7.94
- Callaway Golf is trading at 1.7 times its stockholders equity per share which is well outside the expected range of between 2 and 4 times that most firms tend to trade at.
- For perspective the average price to book value of firms in the S&P 500 is 3.34. Read more about the S&P500 here.
Callaway's management commentary on their 1st quarter 2020 earnings report
CARLSBAD, Calif., May 7, 2020 /PRNewswire/ -- Callaway Golf Company (NYSE:ELY) announced today financial results for the quarter ended March 31, 2020 consistent with the preliminary estimates announced on April 27, 2020. The Company also announced the completion on May 4, 2020 of the issuance of 2.75% Convertible Senior Notes due 2026, raising net proceeds of approximately $250 million after certain transaction costs.
"We are pleased that during the first quarter of 2020 our golf equipment market shares remained strong in all of our major markets and that we were able to deliver a profitable quarter despite the negative impact of COVID-19," commented Chip Brewer, President and Chief Executive Officer of Callaway Golf Company (the "Company"). "In fact, through early March we were on track for another record sales year, which would have made it our fourth consecutive record year. While the COVID-19 pandemic will have a significant impact on our results in the short-term, we believe we will be well positioned to emerge from this pandemic. Our golf and outdoor lifestyle businesses support an active and healthy lifestyle that is compatible with a world of social distancing. We are also pleased that we are beginning to see some signs of recovery, particularly in those regions that were first affected."
"We are pleased that during the first quarter of 2020 our golf equipment market shares remained strong in all of our major markets and that we were able to deliver a profitable quarter despite the negative impact of COVID-19," commented Chip Brewer, President and Chief Executive Officer of Callaway Golf Company (the "Company"). "In fact, through early March we were on track for another record sales year, which would have made it our fourth consecutive record year. While the COVID-19 pandemic will have a significant impact on our results in the short-term, we believe we will be well positioned to emerge from this pandemic. Our golf and outdoor lifestyle businesses support an active and healthy lifestyle that is compatible with a world of social distancing. We are also pleased that we are beginning to see some signs of recovery, particularly in those regions that were first affected."
Mr. Brewer continued, "The issuance of our convertible notes was well received by the market, allowing us to obtain favorable pricing and terms. This additional liquidity will provide a comforting backstop in the event that the duration or impact of the COVID-19 pandemic is longer or more severe than anticipated. I want to emphasize, however, that having this additional liquidity will not lessen our resolve for, and we remain committed to, maintaining our disciplined approach to managing capital and expenses. We believe that this additional liquidity, together with the strength of our brands, our product and geographic diversity, and the operational improvements we have made to date, will enable us to create shareholder value as we emerge from this pandemic."
Convertible Notes Offering
On May 4, 2020, the Company consummated its issuance of 2.75% Convertible Senior Notes due 2026. The offering was oversubscribed, which allowed the Company to increase the size of its $200 million planned offering to $225 million. As is customary in transactions of this type, the Company also granted the initial purchasers the option to purchase an additional 15% of convertible notes, which has already been exercised. As a result, the aggregate principal amount of the notes issued was approximately $259 million and the total net proceeds to the Company was approximately $250 million after certain transaction costs. The Company is bullish on its future prospects and therefore used approximately $32 million of the net proceeds to pay the cost of certain capped call transactions, which are generally expected to reduce the potential dilution to shareholders upon any conversion of the notes. The Company intends to use the balance of the proceeds for working capital and other general corporate purposes.
Full Year 2020
The Company previously reported that due to the uncertain duration or full impact of the COVID-19 pandemic, the Company is no longer providing financial guidance at this time.
Convertible Notes Offering
On May 4, 2020, the Company consummated its issuance of 2.75% Convertible Senior Notes due 2026. The offering was oversubscribed, which allowed the Company to increase the size of its $200 million planned offering to $225 million. As is customary in transactions of this type, the Company also granted the initial purchasers the option to purchase an additional 15% of convertible notes, which has already been exercised. As a result, the aggregate principal amount of the notes issued was approximately $259 million and the total net proceeds to the Company was approximately $250 million after certain transaction costs. The Company is bullish on its future prospects and therefore used approximately $32 million of the net proceeds to pay the cost of certain capped call transactions, which are generally expected to reduce the potential dilution to shareholders upon any conversion of the notes. The Company intends to use the balance of the proceeds for working capital and other general corporate purposes.
Full Year 2020
The Company previously reported that due to the uncertain duration or full impact of the COVID-19 pandemic, the Company is no longer providing financial guidance at this time.
Callaway Golf Company (NYSE: ELY) stock price history
The image below, obtained from Google, shows the stock price history of Callaway Golf Company (NYSE: ELY) over the last 5 years. And its been a pretty average time for Callaway Golf Company stockholders. 5 years ago the stock of Callaway Golf Company was trading at around $9.50 a stock and its currently trading at $13.53. That's a decent return of 42.4% provided to Callaway Golf Company stockholders over the last 5 years.
Callaway Golf Company stock is trading at very close to the midpoint between its 52 week high and 52 week low which to us is an indication that the short term sentiment and momentum of Callaway's stock is neutral at this point in time.
Callaway Golf Company stock is trading at very close to the midpoint between its 52 week high and 52 week low which to us is an indication that the short term sentiment and momentum of Callaway's stock is neutral at this point in time.
Recent Google search trends for ELY stock price
The graphic below shows the Google search trends for ELY stock price over the last 12 months in the United States. As it shows there isn't really a lot of interest in this company's stock price as the searches are rather erractic
Recent coverage of Callaway Golf
The extract below shows recent coverage of Callaway Golf as obtained from Finance.yahoo.com
Callaway Golf (ELY) came out with quarterly earnings of $0.32 per share, beating the Zacks Consensus Estimate of $0.30 per share. This compares to earnings of $0.63 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of 6.67%. A quarter ago, it was expected that this maker of golf equipment and accessories would post a loss of $0.24 per share when it actually produced a loss of $0.26, delivering a surprise of -8.33%.
Over the last four quarters, the company has surpassed consensus EPS estimates three times. Callaway, which belongs to the Zacks Leisure and Recreation Products industry, posted revenues of $442.28 million for the quarter ended March 2020, missing the Zacks Consensus Estimate by 3.19%. This compares to year-ago revenues of $516.20 million. The company has topped consensus revenue estimates three times over the last four quarters.
The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call. Callaway shares have lost about 36.2% since the beginning of the year versus the S&P 500's decline of -11.8%.
What's Next for Callaway?
While Callaway has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?
Read the full article here
Callaway Golf (ELY) came out with quarterly earnings of $0.32 per share, beating the Zacks Consensus Estimate of $0.30 per share. This compares to earnings of $0.63 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of 6.67%. A quarter ago, it was expected that this maker of golf equipment and accessories would post a loss of $0.24 per share when it actually produced a loss of $0.26, delivering a surprise of -8.33%.
Over the last four quarters, the company has surpassed consensus EPS estimates three times. Callaway, which belongs to the Zacks Leisure and Recreation Products industry, posted revenues of $442.28 million for the quarter ended March 2020, missing the Zacks Consensus Estimate by 3.19%. This compares to year-ago revenues of $516.20 million. The company has topped consensus revenue estimates three times over the last four quarters.
The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call. Callaway shares have lost about 36.2% since the beginning of the year versus the S&P 500's decline of -11.8%.
What's Next for Callaway?
While Callaway has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?
Read the full article here
Callaway Golf (NYSE: ELY) latest stock valuation
So based on Callaway Golf latest earnings report what do we value Callaway Golf stock at? Based on their earnings reported our valuation model provides a target price (full value price) for Callaway Golf at $21.10 per stock
We therefore believe that the stock of Callaway Golf stock is undervalued. We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price, which in this case is $21.10 A good entry price into Callaway Golf would therefore be at $19 or below.
We expect the stock of Callaway Golf to kick up from current levels to levels closer to our target price (full value price) in coming weeks and months as we believe the stock is under valued and offers good long term value.
We therefore believe that the stock of Callaway Golf stock is undervalued. We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price, which in this case is $21.10 A good entry price into Callaway Golf would therefore be at $19 or below.
We expect the stock of Callaway Golf to kick up from current levels to levels closer to our target price (full value price) in coming weeks and months as we believe the stock is under valued and offers good long term value.
Next earnings release of Callaway Golf Company
It is expected that Callaway Golf Company will release their 2nd quarter 2020 earnings release in early August 2020