Callaway Golf Raises Q3, FY21 Guidance; Shares Jump 4%

Golf equipment manufacturer Callaway Golf Company (ELY) updated its third quarter and full-year 2021 guidance on the back of continued outperformance and strength of the company’s diversified portfolio.

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The company also attributes its increased outlook to operational flexibility, which enables it to adapt and perform amid rapidly changing business conditions due to the COVID-19 pandemic. Following the news, shares of the company jumped 3.9% to close at $28.92 on Tuesday. (See Callaway Golf stock charts on TipRanks)

Commenting on the business update, The President and CEO of Callaway Golf Company, Chip Brewer, said, “While our visibility into the remainder of the year remains murky, our revised guidance reflects the best information we have about the short-term disruption to our supply chain and the continued momentum of our businesses. Looking ahead to 2022 and beyond, we are excited about the strong growth embedded within our unique platform of businesses and are committed to unlocking additional long-term value for our shareholders.”

For full-year 2021, Callaway projects revenue to fall in the range of $3.065 billion to $3.095 billion and adjusted EBITDA to be in the range of $370 million to $390 million. The Street expects the company to report revenue of $3.04 billion for FY21.

For the third quarter, the company expects revenue and adjusted EBITDA to be in the range of $850 million to $860 million and $105 million to $110 million, respectively. Analysts expect the company to post revenue of $753 million in the third quarter.

Callaway has been facing severe supply chain constraints from its Vietnam-based supplies. Currently, it has managed to shift some of its production capacity to non-Vietnam suppliers, which enabled ELY to move the remaining supply chain risk to the fourth quarter.

Additionally, ELY’s acquisition of Topgolf in March 2021 outperformed expectations in July and August. Also, TravisMathew and Jack Wolfskin clothing lines witnessed continued brand momentum in the first two months of the third quarter, and its golf equipment business displayed strength. All of these helped uplift sales in the third quarter for Callaway.

What’s more, with the concerns of the Delta variant increasing, Callaway has delayed hiring of planned positions, travel, and some event-based marketing expenses, which has helped it to defer operating expenses to 2022, thereby, improving its adjusted EBITDA outlook.

In response to the increased guidance, Berenberg Bank analyst Rudy Yang maintained a Buy rating on the stock with a price target of $40, implying 38.3% upside potential to current levels.

Yang said, “Looking ahead, today’s update provides further evidence of how the company is continuing to benefit from strong demand for golf, in part due to the pandemic, and we expect the momentum in the business will continue in the medium-term.”

The analyst also noted that Callaway’s performance is based on consumer’s interest in golf sport, which is vulnerable to consumer preference shifts. Also, consumer discretionary spending plays an important part in how and when consumers spend on sports with the changing economic cycles.

Overall, the stock commands a Strong Buy consensus rating based on 5 Buys and 1 Hold. The average Callaway Golf price target of $41 implies 41.8% upside potential to current levels. Shares have gained 46.1% over the past year.