Acushnet Holdings Corp. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. Acushnet designs, manufactures and distributes golf products under the Titleist and FootJoy brands. Comparisons with 2020 are substantially affected by pandemic-related shutdowns and expense reductions in the prior-year quarter.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $624.9 million | $300.0 million | $1,205.7 million | $708.7 million |
| Gross profit / margin | $334.4 million / 53.5% | $156.5 million / 52.2% | $645.2 million / 53.5% | $357.4 million / 50.4% |
| Operating income | $109.2 million | $11.7 million | $229.2 million | $33.2 million |
| Net income attributable to Acushnet | $81.1 million | $2.3 million | $166.0 million | $11.2 million |
| Diluted EPS | $1.08 | $0.03 | $2.21 | $0.15 |
| Adjusted EBITDA / margin | $127.8 million / 20.4% | $33.1 million / 11.0% | $263.0 million / 21.8% | $85.9 million / 12.1% |
Q2 net sales increased 108.3% reported and 99.9% at constant currency; first-half sales increased 70.1% and 64.1%, respectively. All four reportable segments grew. Q2 segment sales were Titleist golf balls $202.3 million, golf clubs $152.8 million, golf gear $65.0 million and FootJoy golf wear $164.6 million. Segment operating income improved across all four; golf clubs and FootJoy moved from losses in Q2 2020 to profits.
For the first half, operating cash flow was $152.4 million, versus cash used of $0.8 million a year earlier. Capital expenditures were $12.4 million, implying operating cash flow less capex of about $140.0 million. Cash, cash equivalents and restricted cash totaled $253.3 million; management reported $251.3 million of unrestricted cash. Current assets were $1,033.6 million and current liabilities $422.8 million.
Debt at June 30 was approximately $344.3 million, comprising $21.5 million of short-term debt, $17.5 million current maturities and $305.3 million long-term debt. The company had $366.6 million available on its revolving facility after letters of credit and $58.5 million available under local facilities. It reported compliance with debt covenants. Dividends paid in the first half were $24.9 million; share repurchases totaled $17.9 million.
Changes and drivers
- Management attributed higher sales principally to elevated golf rounds and demand across product categories, alongside the adverse effect of government shutdowns in Q2 2020. The new Pro V1 and Pro V1x launches also contributed to golf-ball growth.
- Gross margin improved year over year, supported by sales volume, manufacturing overhead absorption, product mix and, for clubs, higher average selling prices. Increased inbound freight costs partially offset these benefits; FootJoy also faced higher footwear manufacturing costs in Q2.
- SG&A rose to $210.3 million in Q2 and $386.6 million in the first half, reflecting higher selling, advertising, promotional and professional-tour costs, as well as comparison with pandemic-driven expense reductions in 2020.
- Interest expense declined year over year, mainly due to lower borrowings and interest rates. Other expense also declined, primarily reflecting lower pension settlement costs.
- The company ended its credit-agreement covenant relief period early in March 2021; it said the prior covenant terms had resumed and it was compliant at quarter-end. Interest-rate swaps matured in May 2021; no swaps remained outstanding at June 30.
Outlook, risks and unusual items
- No full-year sales or earnings guidance is provided in the filing. Management expects 2021 capital expenditures of $45–$50 million, mainly for golf-ball operations, precision manufacturing, distribution and information technology.
- Management believes operating cash flow, cash on hand and available credit should meet liquidity needs for at least the next 12 months, subject to the duration and severity of COVID-19 and other business risks.
- Demand remained elevated, but supply-chain disruptions, raw-material shortages and higher freight charges constrained the company’s ability to serve trade partners. Management cautioned that variants, renewed restrictions or easing of pandemic-related restrictions could change demand and further disrupt supply.
- Key exposures include seasonality, consumer demand and rounds played, weather, supplier and shipping disruptions, raw-material and component costs, foreign-exchange movements, variable interest rates, competition and product execution. A one-percentage-point increase in rates on variable-rate debt was estimated to add $3.5 million to annual pretax interest expense.
- The 2020 restructuring program generated $13.2 million of cumulative severance and related charges; management expected no further program costs. First-half 2021 included $1.5 million of pension settlement costs.
- Pending lawsuits relate to ordinary business operations; the company said it could not estimate aggregate potential losses and had not recorded a liability. No material changes to the risk factors from the 2020 Form 10-K were reported.
Important facts for investors to verify
- How much of the exceptional year-over-year growth reflects sustained demand versus the unusually weak, shutdown-affected 2020 comparison.
- Whether production and supply-chain capacity can keep pace with demand, and how freight, input costs and product availability affect margins.
- Whether operating cash generation remains strong as receivables, inventory and seasonal working-capital needs fluctuate.
- Debt covenant headroom, variable-rate exposure and the effect of benchmark-rate replacement following the expected LIBOR discontinuation.
- Whether the $45–$50 million capital-spending plan, dividends and remaining share-repurchase authorization are consistent with liquidity and investment priorities.