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Callaway Golf posts big loss

Struggling amid delayed product launches and price reductions, Callaway Golf Co. yesterday reported a hefty third-quarter loss.

The Carlsbad golf equipment company said it lost $35.9 million, or 53 cents a share, compared with net income of $2.33 million, or 3 cents a share, a year ago. Sales for the quarter fell to $128.5 million, from $153.6 million a year ago.

Callaway, which makes the Big Bertha and Odyssey golf clubs, faced higher costs related to integrating Top-Flite, a golf ball company it acquired last year. Callaway is combining its ball and club manufacturing operations with Top-Flite.

Excluding certain costs, Callaway would have had a loss of $31.5 million, or 46 cents a share. The average estimate of five analysts surveyed by Thomson Financial was for a loss of 45 cents a share.

William C. Baker, the company's recently appointed chairman and chief executive, said Callaway is going through a tough transition period as it reevaluates its business strategy to deal with the competitive golf market.

Callaway has struggled recently as golf companies have battled to sell their products to a stagnant number of avid players. In particular, Callaway has seen its once-dominant position in the titanium driver market challenged by such rivals as TaylorMade, another Carlsbad company, which has come out with new products at aggressive prices.

In September, Callaway said it would delay product launches while it examined its business prospects and would not provide updated earnings forecasts until that evaluation was complete.

Despite the company's third-quarter loss, Baker said that price cuts had helped reduce inventory levels at retail outlets, adding that it was "a trend we hope will continue as we prepare for 2005."

Baker took over as CEO in August, when Ron Drapeau resigned after Callaway reported weak second-quarter results. At the time, Baker, a long-time board member who has also helped turn around other troubled companies, was named interim CEO, but yesterday in the conference call with Wall Street analysts Baker said Callaway's board has removed "interim" from his title.

Terry McAndrew, publisher of Web Street Golf Report, an industry newsletter, said the company's results were in line with expectations.

"There were some bright spots and some disappointments," he said.

Chief among the disappointments were the continuing struggles of Callaway's metal wood business, which the company had once dominated with its Big Bertha club. Sales of its metal woods in the third quarter fell to $14.3 million, from almost $44 million a year ago. Sales also fell for the company's irons and putters.

Callaway's golf ball business, however, improved over last year, growing to $21.1 million in sales for the third quarter, from $12.4 million a year ago.

"The bright spot is that their golf business is at a level that many people did not think was possible," McAndrew said.

Still, he said, the company has plenty of challenges ahead. It must recapture market share in the competitive metal woods business and restore the business to profitability.

Despite its troubles, Callaway still has a strong reputation with golfers, McAndrew said.

"The Callaway brand has not lost its luster from a consumer perspective," he said.

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