Callaway earnings forecast. Why the stock is falling.

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Callaway Golf Balls.

Warren Little / Getty Images

Callaway Golf

entered a new chapter after merging with Topgolf earlier this year, combining its equipment business with a leisure and hospitality segment. Preliminary results suggest that the combination has untapped potential.

The company, which announced its results after the market closed on Monday, crushed expectations for its second-quarter earnings. Non-GAAP earnings per share rose to 36 cents, while analysts expected just a dime. Revenue rose to $ 914 million, exceeding analysts’ expectations of $ 755 million.

Driven by a 91% increase in golf equipment sales compared to the corresponding period last year, Callaway (ticker: ELY) recorded a 97% year-over-year increase in sales across all its business lines, with the exception of Topgolf, leisure and hospitality which it acquired earlier this year.

Both revenues and profits were out of proportion even compared to the same quarter in 2019, before economic uncertainty over the pandemic briefly curtailed spending on luxury goods. Excluding sales to Topgolf, the company reported revenue of $ 588 million, up from $ 447 million in the same quarter of 2019.

While the Topgolf business segment, which accounts for 36% of revenue, posted strong figures, management indicated that sales at the same sites are still recovering and currently stand at around 90 % of 2019 level.

CEO Chip Brewer told investors Callaway is confident about the long-term outlook. “While in the short term we will experience persistent supply constraints and other challenges caused by the pandemic, we believe these challenges will be manageable given current demand levels and the actions we are taking to mitigate the risk. impact, ”he said.

For the current quarter, management expects revenues to be between $ 775 million and $ 790 million. That would be less than the $ 914 million in the most recent quarter, but Brewer said on a call to discuss the results with investors that seasonal factors mean the second quarter is generally stronger than the third.

For the full year, management expects consolidated sales of approximately $ 3.0 billion, significantly more than the $ 1.7 billion in sales generated in 2019 .

Jefferies analyst Randal Konik said that while the forecast for the third quarter may look weak, he believes the management call reflects supply chain issues rather than demand issues. Konik raised his share price target to $ 49 from $ 45, which implies a potential gain of 55%.

Investors seem less confident. The stock was down 3.4% to $ 32 around noon, while the Dow Jones Industrial Average was up 0.5% and the S&P 500 was up 0.2%.

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