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Why Callaway Golf Stock Just Popped 14%

By Rich Smith - Updated Apr 27, 2020 at 1:17PM

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An earnings preannouncement set investors to cheering.

What happened

It's not time for Callaway Golf (ELY -0.64%) to report its first-quarter numbers just yet, but on Monday, the golfing-equipment manufacturer did the next best thing.

Announcing "preliminary financial results for first quarter 2020" this morning, Callaway management ignited a fire under its stock, with the shares up 14.1% as of 1:05 p.m. EDT.

A golf club lined up to hit a golf ball

Image source: Getty Images.

So what

Callaway's preannouncement said it was "profitable" in the first quarter, thanks to "strong results" that were "on track for record net sales for 2020" through the beginning of March. Starting in March, "global regulatory responses implementing social distancing and shelter-in-place orders significantly slowed retail sales," and the company is now busy "significantly reducing costs and enhancing liquidity."

Regardless, Callaway still expects to record positive profits of between $0.27 and $0.31 per share this year, on sales of $438 million to $443 million.

Now what

Granted, the numbers Callaway says it will report will amount to a sales decline of about 15% year over year, and a 42% plunge in profits. Also, before COVID-19, analysts had been forecasting earnings more like $0.39 per share, and sales of $486 million. But it seems investors weren't giving those numbers much credence -- and for now, they're just happy to hear that Callaway isn't going broke.

Longer-term, CEO Chip Brewer comments that Callaway is well-positioned to thrive in "a world of social distancing and a 'new normal'," where the "joy of being outdoors, whether hiking, camping or simply taking a walk in nature, has never been more evident and is both logically and emotionally appealing."

The disruptions caused by COVID-19 mean that Callaway is "no longer providing financial guidance" for the time being. Regardless, Brewer says that golf should "come back quickly as it is commonly viewed as a relatively safe and healthy outdoor activity that one can enjoy while still observing social distancing guidelines."

Investors seem to agree.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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