Golf club shaft maker Aldila (NASDAQ:ALDA) is driving to report Q4 2006 results on Wednesday, Feb. 28.

What analysts say:

  • Buy, sell, or waffle? No analyst has ventured to give an opinion on this stock, which was featured as a "Tiny Gem" at Motley Fool Hidden Gems.
  • Revenues. While no one wants to venture an opinion, one brave analyst has forecast a 1% drop in revenues, to $17.9 million.
  • Earnings. And there's one estimate that earnings will fall 23% to $0.37 per share.

What management says:
Golfers want to hit the ball a mile. Aldila's graphite shafts, which drive the majority of the company's revenue, help golf manufacturers accomplish just that. However, with 72% of Aldila's sales currently coming from golf manufacturers, Aldila may be playing golf caddy to its customers.

By selling branded and co-branded shafts to these companies, Aldila finds itself in a highly competitive marketplace where price-cutting has been the watchword recently, reversing a trend of rising prices in the early 2000s. In the third quarter, CEO Peter Mathewson disclosed, "The average selling price of golf shafts decreased 9% quarter on quarter." Sales of branded shafts fell 32%, while co-branded shafts fell 73% from the comparative year-ago period.

What management does:
The pricing battles being played out now are slicing Aldila's profits. Expect to see further pressure on margins in the year ahead. In addition to a fall-off in sales of its branded and co-branded shafts -- both of which typically sell at higher margins than Aldila's other products -- there is a tight supply of carbon fiber to manufacture the shafts, which will increase raw material prices for the club maker.

Despite an uptick in the number of rounds of golf played in 2006, shifts to lower-cost iron shafts and rising commodity prices will continue to affect Aldila.

Margin

09/05

12/05

03/06

06/06

09/06

Gross

37.5%

38.5%

39.8%

39.6%

36.1%

Operating

25.1%

26.1%

27.3%

26.4%

22.6%

Net

17.2%

17.4%

18.1%

17.8%

17.3%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Although golf is as popular as ever, these factors will likely put pressure on club makers and club-component makers like Aldila. Furthermore, with nearly 60% of its sales coming from just three companies -- Acushnet Golf, which is a subsidiary of Fortune Brands (NYSE:FO), Callaway (NYSE:ELY), and privately held Karsten -- Aldila is highly dependent upon these companies to push sales for its own growth. So when sales are lagging, the promotions these golf manufacturers push (such as 2-for-1 sales in the summer) impact Aldila's performance. While the company believes it is still well positioned in the marketplace, with strong incoming orders, being at the helm of golf manufacturers is not ideal. When combined with rising prices and intense competition, it looks like Aldila will continue to land in the rough.

Related Foolishness:

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.