Why Callaway Golf Co. Stock Was Surging Today

By Markets Fool.com

Continue Reading Below

Image source: Callaway.

What happened

Shares ofCallaway Golf(NYSE: ELY) were headed straight down the fairway today after the golf equipment maker beat estimates in its third-quarter report and raised its guidance. As of 10:46 a.m. EDT, the stock was up 13.5%.

So what

Revenue in the quarter increased 6.9% to $187.9 million, well ahead of estimates at $177.9 million. On the bottom line, Callaway's per-share loss widened from $0.04 to $0.06, but that also beat Wall Street expectations of an $0.11 loss. The third quarter is a seasonally slow one in the golf equipment business, and management had projected a loss of $0.10 to $0.15 due to a planned increased operating expenses.

Continue Reading Below

CEO Chip Brewer said, "We are pleased to see our continued momentum in the marketplace in the third quarter. Despite industry headwinds and softer-than-expected market conditions, we grew our net sales in the third quarter."

Now what

Callaway, which also owns the Odyssey brand, is likely benefiting from Nike (NYSE: NKE)andAdidas'decisionsto exit the golf business earlier this year, which will thin out competition in a highly competitive industry. Callaway even snagged Nike's former senior director of golf ball innovation, Rock Ishii, and plans to invest more research and development in its golf ball division.

Looking ahead, Callaway bumped up its full-year revenue guidance from $855 million-$880 million to $870 million-$880 million, representing an increase of 3%-4% from 2015. For earnings per share, management sees full-year results at $0.50-$0.54, up from $0.40-$0.50 and much better than the $0.17 it posted a year ago -- $0.18 of that profit is due to a one-time gain from the sale of a portion of its Topgolf investment.

With a guidance hike like that, it's easy to see why shares are soaring today. The golf equipment business is tough and highly sensitive to macroeconomic effects, but with the exit of Nike and Adidas, momentum seems to be in Callaway's favor.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Jeremy Bowman owns shares of Nike. The Motley Fool owns shares of and recommends Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.