Acushnet Holdings Corp. — FY2019 Form 10-K
Business context and period. The filing reports the fiscal year ended December 31, 2019; it is an annual report, not a standalone fourth-quarter filing. Acushnet designs, manufactures and sells golf equipment and apparel under brands including Titleist, FootJoy and KJUS. Its four reportable segments are Titleist golf balls, golf clubs, golf gear and FootJoy golf wear.
Financial performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $1,681.4 million | $1,633.7 million |
| Gross profit / margin | $872.2 million / 51.9% | $842.4 million / 51.6% |
| Operating income | $185.7 million | $172.3 million |
| Net income attributable to Acushnet | $121.1 million | $99.9 million |
| Diluted EPS | $1.60 | $1.32 |
| Adjusted EBITDA / margin | $240.1 million / 14.3% | $230.8 million / 14.1% |
| Cash from operations | $134.3 million | $163.7 million |
| Capital expenditures | $33.0 million | $32.8 million |
| Unrestricted cash at year-end | $32.1 million | $29.0 million |
Sales rose 2.9% reported and 4.8% at constant currency. Net income attributable to Acushnet increased 21.2%; the effective tax rate fell to 24.6% from 31.4%. Adjusted EBITDA margin edged up 0.2 percentage points. Operating cash flow declined $29.4 million, primarily due to higher working capital, including increases in receivables and inventory.
FY2019 segment sales: golf balls $551.6 million (+5.3%); golf clubs $434.4 million (-2.4%); golf gear $150.0 million (+2.7%); FootJoy golf wear $441.9 million (+0.5%). Golf ball growth reflected the 2019 Pro V1 and Pro V1x launch and PG Golf acquisition. Club sales and segment operating income weakened, with lower sales of second-model-year drivers, fairways and wedges.
Fourth quarter, unaudited: Sales were $368.3 million versus $343.4 million in Q4 2018; operating income was $28.6 million versus $19.6 million; net income attributable to Acushnet was $17.9 million versus $11.4 million. Quarterly results are seasonal and should not be treated as representative of the full year.
Debt, liquidity and capital allocation
Year-end indebtedness was approximately $404.4 million excluding debt issuance costs; the balance sheet reported $402.3 million of debt and finance lease obligations after issuance costs. The company had $338.5 million available under its $400 million revolving facility, after letters of credit, and $60.1 million available under local credit facilities. It was in compliance with credit covenants at year-end. In December 2019 it refinanced and amended its secured credit facilities, including a $350 million term loan and a $400 million revolver, both maturing in 2024. $160 million of variable-rate debt was hedged with interest-rate swaps.
Cash and operating cash flows, together with available borrowing capacity, were expected by management to meet liquidity needs for at least 12 months, subject to customary borrowing conditions. The company paid $43.5 million in common dividends and repurchased $29.4 million of shares in 2019. The board authorized an additional $50 million repurchase program in February 2020, bringing total authorization to $100 million. 2020 capital expenditures were estimated at approximately $38 million.
Changes, outlook and risks
- Constant-currency sales growth was led by golf balls; reported sales outside the U.S. declined 1.4%, while constant-currency international sales increased 2.4%. Japan was a notable regional weakness.
- Acushnet acquired KJUS, a premium golf and ski apparel company, in July 2019 for $28.7 million net of cash acquired. Its results were reported outside the four segments. The filing also notes the 2018 PG Golf acquisition.
- Management did not provide a numerical sales or earnings forecast. It described ongoing organic growth, product innovation, e-commerce and international expansion plans. No assurance is given that forward-looking expectations will be achieved.
- Key exposures include golf participation, weather and discretionary consumer spending; product-launch timing and demand forecasting; intense competition; foreign exchange and raw-material costs; dependence on suppliers and concentrated manufacturing locations; and retailer credit and channel risks. The filing specifically identifies the Wuhan coronavirus outbreak beginning in 2020 as a potential threat to operations and supply chains.
- Other items to monitor include pension obligations and sensitivity to actuarial assumptions; variable-rate borrowing and LIBOR transition; and goodwill/intangible-asset valuations. No goodwill impairment was recorded, but the auditor identified the Titleist Golf Clubs goodwill assessment as a critical audit matter due to judgment in projected revenue growth assumptions.
- Acushnet disclosed ordinary-course litigation but said outcomes could not be predicted and it had not recorded a liability for potential losses. It reported ongoing environmental-agency investigations and did not expect material future costs for identified past and current issues. The company adopted lease accounting in 2019, recognizing lease assets and liabilities; the change did not affect reported operating results.
Most important facts for investors to verify
- Whether golf-ball growth and stronger U.S. demand can offset softer golf-club sales and Japan weakness.
- Whether the reduction in operating cash flow reflects temporary working-capital timing or a sustained cash-conversion change.
- How KJUS integration, acquisitions and planned e-commerce expansion affect sales, margins and cash needs.
- Debt balances, interest-rate exposure, covenant headroom, pension funding requirements and the capacity to sustain dividends and repurchases.
- The potential effects of the coronavirus outbreak, supply-chain concentration, foreign exchange and economic conditions on demand and manufacturing.
- Governance implications of Fila/Magnus’s approximately 52.1% ownership and the company’s use of controlled-company NYSE exemptions.