Callaway Tops the Street’s Expectations

Callaway Golf Company (ELY) reported stronger-than expected second quarter earnings Wednesday, driven primarily by improved gross margins, favorable foreign currency rates and growth in its putters and accessories businesses.

The company posted a profit of $124 million, or 38 cents a share, compared with $110 million, or 21 cents a share, a year ago, and topping analysts’ average estimates of 14 cents.

Revenue was $304 million, an increase of 1% from $302 million in the same quarter last year, and beating the Street’s view of $300.78 mission. Sales were favorably affected by changes in foreign currency rates.

“Global economic conditions and the golf industry have recovered more slowly than our original expectations coming into 2010," Callaway CEO George Fellows said. “While the golf industry will recover, given recent increased uncertainty regarding retailer and consumer spending in the back half of the year, it does not appear that the industry will fully recover during 2010.”

Consumer spending remains constrained by high unemployment, he said, as well as modest income growth, lower housing wealth and tight credit.

These constraints along, with unfavorable weather conditions, have resulted in an overall sales decline in the golf industry, but, Fellows said, Callaway’s first-half results are an improvement from the prior year.

In its full-year view the company expects to improve its full-year gross margins while maintaining virtually flat expenses.