Callaway Golf Co (ELY): Unconventional Consumer Confidence Benefactors

Page 1 of 2

Callaway Golf Co (NYSE:ELY)Looking for a alternative, perhaps unconventional, consumer confidence benefactor?

The Conference Board released the most recent consumer confidence statistics for the month of May last week. Economists were expecting a modest increase in consumer confidence from the month of April with a reading of 71. The numbers hit the wires far above economist expectations with a reading of 76.2 in the month of May and upward revisions to 69 for the month of April.

The futures market immediately priced in the announcement which sent the broad market roaring higher. The reading of 76.2 represents the highest level of consumer confidence in the last five years. The rise in confidence can be attributed to a stronger housing market, rising stock market, lower than expected fears of inflation, and increased optimism regarding the employment market.

This release got me thinking about some unconventional industries which would perform well as confidence rises. Being an avid golfer myself, I realized that the golfing industry, which had been hit hard during the economic slowdown, should perform well during the economic recovery. Below, I would like to highlight some companies I expect to do well as consumer confidence rises and the housing recovery continues.

Following Mickelson

One of the iconic golf brands on the market, Callaway Golf Co (NYSE:ELY), has under performed the broad market this year, up only 5% year to date. My two part investment thesis behind Callaway Golf Co (NYSE:ELY) is simple and logical. First, Callaway Golf Co (NYSE:ELY) stands to do well as golfers trade up their aging equipment purchased pre-recession. Golf sales were hit hard during the recession as consumers could not afford the high price tags of new equipment. During this time, equipment wore out, sales slumped, and technology innovation continued. Amateurs with cash in hand, will now look to upgrade their out of date sets.

Second, as the housing market recovers and consumers shift from renters to buyers, it is likely consumers will be more inclined to sink the costs associated with a golf membership. More rounds of golf equals more revenues for Callaway Golf Co (NYSE:ELY) as grooves are worn out and balls are lost. In addition to these above catalysts, the company has greatly improved its manufacturing processes. Last month, the company announced it improved its assembly labor costs by 45% and its golf ball manufacturing productivity by 49% year over year. This improvements should translate into higher margins and earnings in the years ahead.

Lets take a look at some positives from the company’s first quarter earnings. I was pleased to see the company gaining market share both domestically and in major markets internationally. Market share rose from 12.6% to 13.4% in the U.S. market while rising from 10% to 12% in the key Japanese market. Management believes the company will continue to regain share throughout the remainder of the year on the back of a strong product pipeline. As a result of this growth, the company was able to grow revenues 7% on a year over year basis. Golf ball sales increased 22% to $43 million as a result of increased demand for mid-tier options. While not the high end, I think rising golf ball demand is a leading indicator to hard product growth.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!