William L. Coney Blog: Quietly Making Noise: A Look at Acushnet’s 2018 Financial Report

1.63 Billion.

Dollars.

I don’t care who you are, that’s a lot of cabbage.

And that’s what Acushnet Holdings Corp – made up almost entirely of Titleist and FootJoy – sold in 2018.

And here you thought Callaway hitting $1.24 billion was a big deal.

Acushnet’s 2018 financial report released late last week shows modest to decent growth in some areas and maintained dominance in others, and it illustrates the importance of new products to any company’s stability and growth.

In other words, in true Titleist fashion, the company spent 2018 quietly making noise.

The Big Picture

$1.63 billion is a lot, and it represents a 4.7% increase in sales over 2017. In dollars and cents, that’s a jump of roughly 73 million dollars year over year. CEO David Maher says balls – particularly the new AVX, Tour Soft, and Velocity – and the new TS metal woods and Vokey wedges, fueled that growth.

“The global golf business is structurally healthier than in recent years,” Maher said in a prepared statement. “And the dedicated golfer remains, we believe, the most attractive market opportunity and one we are particularly suited to serve, as they place a premium on performance and quality.”

Yep, that sounds like Titleist.

In terms of net income, Acushnet is reporting $99.9 million in profits for 2018 – a 1.2 million dollar (or 1.3%) increase over 2017.

As you’d expect, balls are Acushnet’s lead dog. 2018 balls sales totaled $524 million, compared to $512 million in 2017 (a 2.3% increase). The company says sales of AVX and the other new releases early in the year offset an expected decline in ProV1 sales in its second model year. To put that $524 million into perspective, Callaway – the #2 Ball in Golf – saw a 20% increase in its ball sales in 2018, but still only sold $196 million worth.

The new TS metalwoods and Vokey SM7 wedges fueled a 12% jump in club sales worldwide: $445 million in 2018 compared to $398 million the previous year. Gear sales – bags, hats, and travel gear – totaled $143 million, an increase of 2.2%. Acushnet admits the jump was primarily due to higher selling prices, as overall volume declined.

FootJoy’s numbers tell an interesting story. Sales dollars were up only slightly in 2018: $440 million compared to $438 million in 2017. Acushnet is giving the 50,000-foot aerial view here, saying only that footwear sales volume was down, but not specifying by how much. The very modest $2 million increase is due, says Acushnet, to higher selling prices across the board for FootJoy, as well an increase in apparel sales. It would be interesting to know by how much footwear volume was down – there are an awful lot of new shoe options out there – and how much of a price hike was needed to offset that drop-off, but I doubt that’s something we’ll ever learn.

It’s rare for golf companies to post strong 4^thquarter results – it being winter and all – but Acushnet’s Q4 results look a bit troubling. Overall sales were down compared to Q4 2017 by 2.3%, as clubs, balls, and FootJoy all went south, offset by a 14% increase in Titleist golf gear sales (hats and bags for the Holidays?)

US sales dropped over 5% compared to Q4 2017. Sales outside of the US increased only 0.1%, with most of that coming from a 21% sales jump in Korea.

Here’s a look at the 2018 overall sales numbers:

US:$826M, up 4.6%
Europe:$220M, up 7.1%
Japan:$199M, down 1.1%
Korea:$221M up 10.4%
Rest of the world: $167M, up 2.5%

EBITDA & Other Love Songs

Publicly traded companies love talking about EBIDTA (Earnings Before Interest, Taxes, Depreciation, and Amortization), claiming it gives a realistic look at the health of a company once you take out things management can’t control. As we said in our look at Callaway’s financials, EBITDA has its detractors and is not among the Generally Accepted Accounting Principles.

On the other hand, EBITDA is a nice, juicy number that can make investors shimmy and shake, which does wonders for stock prices, particularly when net income may not look quite as rosy.

Acushnet’s Adjusted EBITDA for 2018 was just under $238 million, which sounds like a lot, and is a 3.3% increase over 2017’s Adjusted EBITDA. Acushnet reported an EBITDA Margin (compared to sales) of 14.3% That sounds a lot better than a Net Income (post-tax) of $99.9 million, which is a 6% net on 1.62 billion in sales.

For those interested, Acushnet lists its R&D Budget at $51.5 million, which is just around 3% of sales – a percentage fairly consistent with other publicly reported OEMs. Selling, General and Administrative Expenses are listed at $612 million, which covers all costs not related to manufacturing, including commissions, office staff, and marketing, and that’s 37% of sales. Cost of Goods Sold – the direct cost of materials and assembly for balls, clubs, shoes, shirts, hats, bags and the like – is listed at $791 million, or 47% of sales.

Callaway Comparisons

While Callaway has positioned itself as the leader, when it comes to sales, Acushnet is top dog by a good $400 million. The 2018 financial reports, however, show companies with two different dynamics. Callaway is clearly in an aggressive growth and acquisition mode: overall sales were up 19% in 2018, and net income skyrocketed from $41 million in 2017 to nearly $105 million in 2018 thanks in large part to high margin sales via OGIO and Travis Mathew.

That growth should continue in 2019 with the addition of Jack Wolfskin to the portfolio.

Acushnet, on the other hand, remains steady, solid and safe. Titleist manages the ebbs and flows of its business by staggering its club and ball releases every other year, so drop-offs in year-old iron sales are offset by an anticipated boost from new metalwoods sales. Acushnet knows ProV1 sales will dip in the second year of its life-cycle, so we get the AVX, Tour Soft and Velocity to keep ball sales moving in the right direction. It’s a dance every OEM dances.

But when comparing golf’s two biggest dogs, we see one company aggressively pursuing fast and profitable growth and the other managing growth while protecting profitability. Both approaches fit each company’s respective attitude and culture. Yes, Acushnet is larger than Callaway to the tune of about $400 million in sales (which, coincidently, is roughly the amount of sales Jack Wolfskin brings to the table), but a case can be made that, for 2018 at least, Callaway was more profitable (it will be interesting to see if Callaway’s 2018 net profit increase of approximately 150% is sustainable – the guess is no).

Both companies, of course, are competing for your club, ball, shoe, and apparel business. That’s the way of the world. But wading through financial reports tells us both companies are competing for something else, too: they’re competing for investors.

And for the record, Callaway stock (ELY on the NYSE) opened today at $17.52. Acushnet stock (GOLF) opened at $25.30.