Callaway to Cut 700 Jobs in Restructuring
Premium golf club maker Callaway Golf Co. said Wednesday that it will slash 700 jobs, or 24% of its work force, and take up to $85 million in charges as it battles bruising competition in the market for golf equipment.
As a result of the restructuring, which is aimed at improving profit, the company sees a full-year 1998 loss of 25 cents to 40 cents a share. And it expects to save $40 million annually beginning in 1999.
Financial analysts had expected Carlsbad-based Callaway to post a loss of 6 cents a share in the fourth quarter and a year-end profit of 47 cents a share, according to investment research firm First Call. For the third quarter, it posted an 84% drop in earnings.
The announcement is the latest in a series of setbacks and changes at the company, which for years had been a favorite among golfers for its popular line of Big Bertha metal woods, with oversized club heads, and complementary irons.
Last month, Ely Callaway, the 79-year-old founding chairman, resumed the role of top executive after the company fired its highest-paid employee to cut costs and redirect the company. In July, 300 temporary jobs were cut.
“The sale of golf clubs is slow in three major markets: U.S., Japan and Southeast Asia,” Callaway said Wednesday.
“Because of financial chaos in the Asian markets, people are not buying as many golf clubs. In the U.S., there are a lot of good golf clubs and our competitors are pricing lower and closing out more than we are. That puts pressure on us,” he said.
The company slightly dropped it wholesale prices in May, and Callaway said once was enough. “We will retain our prices and standards.”
The full-time employees cut were notified Wednesday. They represent about a quarter of Callaway’s work force; the number of employees will drop to 2,200 by January.
“They are doing all the right things, but frankly that doesn’t mean the marketplace is going to pick up,” said David Allen, analyst at Torrey Pines, a securities firm in Southern California.
Golf equipment sales tend to move in cycles based on technological advances. In this case, Callaway was a leader in the early 1990s by advancing the use of high-tech metals in producing drivers and fairway woods.
Callaway’s success was challenged by other golf club makers such as Taylor Made, and soon the market became saturated with new products. By late 1997 and early 1998, Callaway was in a period with few new products to spur sales, analysts said.
Callaway stock fell 13 cents to close at $10.75 on the New York Stock Exchange, well off its peak of $36.44 reached 13 months ago.
The plan unveiled Wednesday includes consolidating its subsidiary, Odyssey Golf Inc., into the parent operations.
Callaway also will transfer or suspend non-core activities such as interactive golf sites, golf book publishing and driving range ventures. It intends to reinvest in its core business of premium golf clubs and balls.
The Big Bertha name comes from a World War I cannon that had a range of 80 miles. Callaway’s golf-ball-making unit was formed in 1996, and balls are expected to roll off production lines next year.
