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Why Callaway Golf Just Exploded 13% Higher

By Rich Smith - May 11, 2021 at 2:42PM

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Callaway destroyed earnings expectations in the first quarter. Now, what about the rest of 2021?

What happened

Shares of golf supplies company Callaway Golf (ELY 3.18%) stock rocketed this morning in response to a huge first-quarter earnings beat reported last night. Instead of the $561.6 million in sales and $0.14 per share in profit (pro forma) that Wall Street was looking for, Callaway reported sales of $652 million, and $0.62 per share in profit -- more than four times the pro forma profit analysts had predicted.  

Callaway stock reacted immediately, rising 13.2% through 2 p.m. EDT.

Arrow angles up on a green stock chart

Image source: Getty Images.

So what

Callaway's sales shot up 47% in comparison to last year's first quarter, and pro forma profits grew more than ninefold. The change in earnings according to generally accepted accounting principles (GAAP) was nearly as stark. From $0.30 per share earned in Q1 2020, Callaway's GAAP profits surged more than sevenfold to $2.19 per share. Even considering that we're comparing a late-pandemic quarter to an early-pandemic quarter, that's some seriously impressive performance.  

CEO Chip Brewer said he was "very pleased" with the performance, observing that Callaway's "golf equipment business is continuing to experience unprecedented demand," while its "soft goods business" (i.e., clothing) and Topgolf entertainment business are also "recovering from the pandemic faster than anticipated."

Now what

With the pandemic still in effect, but the economy reopening, Callaway was hesitant to give firm predictions for how it expects the rest of the year to unfold. On the one hand, a stronger economy should be good for business. On the other hand, the more people are permitted to frequent indoor entertainment, the less demand there may be for outdoor pastimes such as golf.

That being said, Callaway did sketch out its hopes for how the year will go in broad strokes: With "operating segments ... recovering faster and performing better than expected," management thinks it likely that revenue and adjusted EBITDA this year for the legacy Callaway business will be better than in 2019, and that its Topgolf business "will meet or exceed the full twelve-month 2019 levels."

In dollars and cents, that appears to translate to fiscal 2021 sales of at least $2.62 billion, putting the company within striking distance of analyst projections for $2.69 billion in sales.

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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