Stock Downswing Catches Callaway Golf Executives

No one ever will accuse top Callaway Golf Inc. executives of having the inside scoop on their company.

In recent months, several Callaway executives--including Chief Executive Donald Dye--bought more than $800,000 of stock in the world’s biggest maker of premium golf clubs. It’s an investment that’s been cut in half. Much of the damage came July 23, when the stock dropped by a third on news that second-half 1998 earnings would be wiped out because of Asia’s economic weakness and falling U.S. demand.

Callaway, which makes the Big Bertha line of golf clubs, was hurt earlier this year by rain and cold weather that slowed U.S. sales. Then came Asia’s troubles, particularly in Japan and Korea, which account for 25% of sales. Investors hoped new products would lift sales, but last week’s warning means shareholders and Callaway executives must wait for better times.

“The executives own a lot of stock,” said analyst Brooks Cullen, at Schafer Capital Management, Callaway’s fifth-largest investor with 1.41 million shares. “Hopefully, it wasn’t just window dressing before they came out with the earnings news.”

The biggest buyer in the latest round of purchases was Dye, who bought 30,000 shares for $697,400, or $18.18 to $26.50 each. The purchases brought Dye’s holdings to 340,300 shares in the Carlsbad company.

Other executives who bought stock in the past few months include Chief Financial Officer David Rane, who bought 500 shares for $10,656, or $21.31 each; Chief Legal Officer Steven McCracken, who bought 1,500 shares for $11,964, or $23.88 to $27.13 each; and Senior Executive Vice President Frederick Port, who bought 4,600 shares for $100,050 for $21.75 each.

The company had 71.6 million shares outstanding at the end of the second quarter.

Callaway declined to comment about the executives’ purchases.

Callaway, the leader in the $3-billion-a-year golf club market, said last week it would lose as much as 20 cents a share in the second half. That would leave it with a profit of about 25 cents for the year. Before last week’s announcement, analysts expected Callaway to earn $1.22, according to First Call Corp.

Wednesday’s closing price was $12.50 a share, a drop of 34% from the previous Wednesday’s closing.

It’s not just Asia and a spell of inclement weather that’s given Callaway fits. The U.S. Golf Assn. considered banning large clubs, such as the Great Big Bertha and Biggest Big Bertha drivers. The governing body of U.S. golf met last month to discuss whether technological advances such as the titanium used in these clubs make the sport too easy.

Instead, the USGA suggested testing the “spring-like” effect in the heads of such clubs, rather than banning the drivers. Investors say that the high-tech clubs are in demand and that the decision could ease some of the pressure on the stock.