Acushnet Holdings Corp. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; unaudited. Acushnet designs, manufactures and distributes golf products under brands including Titleist and FootJoy. Its reportable segments are Titleist golf balls, Titleist golf clubs, Titleist golf gear and FootJoy golf wear.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $689.4m | $658.6m | $1,375.7m | $1,264.7m |
| Gross profit | $368.5m | $343.6m | $734.2m | $660.6m |
| Gross margin | 53.5% | 52.2% | 53.4% | 52.2% |
| Operating income | $106.5m | $88.5m | $231.4m | $193.9m |
| Net income attributable to Acushnet | $74.7m | $66.5m | $167.9m | $147.5m |
| Diluted EPS | $1.09 | $0.91 | $2.45 | $2.00 |
| Adjusted EBITDA and margin | $132.1m; 19.2% | $106.5m; 16.2% | $278.8m; 20.3% | $226.5m; 17.9% |
Adjusted EBITDA is a non-GAAP measure defined by the company; it should not be treated as a substitute for GAAP results. Q2 sales grew 4.7% reported and 6.4% at constant currency; first-half sales grew 8.8% reported and 11.6% at constant currency.
Sales and operating trends
- Q2 growth was led by Titleist golf balls (+18.0%) and clubs (+14.5%); golf gear increased 1.2%. FootJoy golf wear declined 11.1%, mainly from lower footwear volumes. On a constant-currency basis, the respective changes were +19.8%, +16.3%, +2.9% and -9.5%.
- For the first half, golf balls rose 17.7%, clubs 13.5% and golf gear 20.8%; FootJoy wear fell 3.2%. U.S. sales increased 19.3%, while reported sales declined in EMEA, Japan and Korea.
- Q2 segment operating income increased for balls ($49.2m versus $29.3m), clubs ($41.4m versus $29.1m) and gear ($13.7m versus $11.7m), but fell for FootJoy ($3.6m versus $12.0m). The first-half pattern was similar: balls $87.8m, clubs $81.9m and gear $25.9m increased; FootJoy fell to $34.4m from $43.3m.
- Management attributed stronger gross profit and margin mainly to sales volumes, lower inbound freight and, for clubs, lower royalty expense. FootJoy footwear faced weaker volume and unfavorable manufacturing overhead absorption. SG&A and R&D increased, including higher advertising for product launches and distribution/custom-fulfillment optimization costs.
Cash flow, debt and liquidity
- First-half operating cash flow was $119.6m, versus cash used of $90.6m in 2022. The improvement primarily reflected working-capital changes, including inventory reduction and improvements in inventory position and supply chain; receivables remained a significant cash use.
- Investing cash outflow was $53.4m, including $27.2m of capital expenditures and cash paid for trademark acquisitions. Financing cash outflow was $62.4m, including $138.0m of common-stock purchases and $27.4m of dividends, partly offset by net revolving-credit borrowings.
- At June 30, cash, cash equivalents and restricted cash totaled $62.5m, including $1.7m restricted; unrestricted cash was $60.8m. About 96.1% of unrestricted cash was held by non-U.S. subsidiaries.
- Debt included $642.7m outstanding on the multi-currency revolver, $37.2m of local short-term borrowings and $1.6m current long-term debt. The revolver rate averaged 6.19%; total available borrowing was $299.8m under the revolver after letters of credit and $28.8m under local facilities. The company reported compliance with debt covenants.
- Management said operating cash flow, cash on hand and available facilities should meet liquidity requirements for at least the next 12 months, subject to risks and customary borrowing conditions. Floating-rate debt remaining after the interest-rate hedge was $579.9m; a hypothetical one-percentage-point rate increase would raise annual pretax interest expense by an estimated $5.8m.
Capital allocation, outlook and risks
- The company repurchased 2.997m shares for $140.1m during the first half, including $100.0m of shares bought from Fila Holdings subsidiary Magnus under an agreement. At June 30, $267.3m remained under the $700.0m authorization; a new Magnus agreement provides for matching open-market purchases through October 27, 2023, up to $100.0m.
- The quarterly dividend was $0.195 per share; a third-quarter dividend of the same amount was declared after period-end. Full-year capital expenditures were expected to be approximately $75m; this is the filing’s stated spending expectation, not earnings guidance. The filing provides no clear quantified full-year sales or earnings guidance.
- In January 2023, Acushnet acquired Club Glove trademarks for $25.2m, including cash and contingent consideration; the trademarks are assigned to golf gear and amortized over a weighted-average 10-year life. The company also cited costs to optimize distribution and custom fulfillment.
- Key disclosed exposures include golf participation and weather, consumer spending, seasonality, product-launch timing, supply-chain and input-cost pressures, inflation, foreign exchange and interest rates, competition, cybersecurity, and customer and litigation risks. A 10% uniform weakening of the U.S. dollar would, under the company’s sensitivity analysis, change the $5.4m net settlement asset on FX forwards to a $10.3m liability; this excludes offsetting changes in underlying exposures.
- Ordinary-course lawsuits remain pending; outcomes and aggregate losses cannot be estimated, and no liability was recorded. The company reported no material changes to the risk factors in its 2022 Form 10-K and no material changes to internal control over financial reporting; disclosure controls were deemed effective.
Most important facts for investors to verify
- Whether Titleist ball and club demand, new-product pricing and launches can sustain sales and margin gains, and whether FootJoy footwear weakness persists.
- How higher interest expense and variable-rate debt affect earnings and cash flow; confirm debt balances, facility availability and covenant compliance in subsequent filings.
- Whether inventory and receivables convert to cash as expected, given seasonality and the first-half working-capital movements.
- The pace and funding of buybacks, including the Magnus matching arrangement, alongside dividends, acquisition spending and expected capital expenditures.
- Developments in input costs, freight, currency exposure and pending litigation, none of which the filing quantifies as a definitive future earnings impact.