In the second quarter, Callaway Golf (NYSE: ELY) was able to wring $138.5 million gross profit (a 4.2 percent increase over the comparable quarter last year) from sales of $252.2 million (a 1 percent drop from the second quarter of 2001).
For the same quarter, Acushnet Co., the unit of consumer product giant Fortune Brands (NYSE: FO) that includes Titleist, FootJoy and Cobra, posted $63.9 million operating profit (a 9.6 percent boost compared to last years second quarter) on sales of $334.7 million (an increase of 11.4 percent over the second quarter of 2001).
But Titleist recently laid off 290 employees in its golf ball operations due to a 'contrarian market,' said Wally Uihlein, Acushnets chief executive.
'The contraction of discretionary spending is going to continue at least through the back half of 2002,' Uihlein said. 'The Dow didnt get to 8,500 overnight, and it wont get back up that fast either.'
Inventory of golf balls at retail is higher now than is usual for this time of year, Uihlein said, so his company had to adjust its production run rates. That required the hard decision to let go the 290 workers, about the amount Acushnet hired in 2000 to ramp up for the increased demand created by the buzz about the companys Pro V1 model golf ball. Uihlein bit the bullet now rather than cause hardship around year-end holidays, he said.
Uihlein predicts a three percent contraction this year in the 50-million-dozen annual U.S. golf ball market. Acushnet now commands about 46 percent of that market.
Nonetheless, development for two or three ball models that had been planned for 2003 will continue, largely because in big companies such plans gather too much momentum to derail. Acushnet has decided not to attend the big industry trade show in Orlando next January; Uihlein plans to use that money to energize more closely targeted marketing programs ' and to fund stepped-up development of those 2003 models.
Callaway, which attributes its profitability during a sales drop to aggressive cost control, is also moving ahead with product and promotion plans. The company entered the value golf ball segment with the Warbird, a two-piece distance ball. The ball will have its own logo to distinguish it from Callaways higher-end models, but the packaging will remind customers that the balls are 'powered by Callaway.'
On the club side, new Callaway wedges by veteran designer Roger Cleveland will reach stores soon. Callaway will drop suggested retail prices on its ERC line of drivers and fairway woods, and for sales between now and Sept. 30, buyers of ERC clubs will receive a free dozen Callaway HX golf balls. The company plans to capitalize on the expected adoption of equipment regulations that will make high-coefficient of restitution drivers conforming between Jan. 1, 2003 and Dec. 31, 2007.
Callaway officials predict sales of between $810 million and $820 million for the year, which would amount to about $1.02 per share. In 1997, Callaways best year, the company had sales of $842.9 million.