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Acushnet (NYSE:GOLF) Misses Q4 Revenue Estimates


Full Report / February 29, 2024

Golf equipment and apparel company Acushnet (NYSE:GOLF) missed analysts' expectations in Q4 FY2023, with revenue down 7.7% year on year to $413 million. On the other hand, the company's full-year revenue guidance of $2.48 billion at the midpoint came in slightly above analysts' estimates. It made a GAAP loss of $0.41 per share, down from its profit of $0.05 per share in the same quarter last year.

Acushnet (GOLF) Q4 FY2023 Highlights:

  • Revenue: $413 million vs analyst estimates of $429.2 million (3.8% miss)
  • EPS: -$0.41 vs analyst expectations of -$0.37 (11.9% miss)
  • Management's revenue guidance for the upcoming financial year 2024 is $2.48 billion at the midpoint, beating analyst estimates by 0.8% and implying 3.9% growth (vs 4.1% in FY2023)
  • Free Cash Flow of $41.97 million, down 74.1% from the previous quarter
  • Gross Margin (GAAP): 50.8%, up from 50% in the same quarter last year
  • Market Capitalization: $4.52 billion

Producer of the acclaimed Titleist Pro V1 golf ball, Acushnet (NYSE:GOLF) is a design and manufacturing company specializing in performance-driven golf products.

Acushnet was founded in 1910 and has consistently focused on improving the golfing experience with high-quality equipment, influencing the standards for producing and using golf gear.

Although many people may not know Acushnet, it is recognized in the golf industry for its well-known brands such as Titleist and FootJoy. These brands offer an array of golf equipment, including balls, clubs, apparel, and accessories.

Sales of golf products are the primary source of revenue for Acushnet, and its goods are sold using a mixture of direct-to-consumer channels and collaborations with distributors. The company invests in research and development it improve its equipment, partnering with professional players to gather feedback for product development. Acushnet targets golfers who value superior equipment and has established a strong reputation, especially with its Titleist brand.

Leisure Products

Leisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.

Competitors in the golf equipment market include Topgolf Callaway (NYSE:MODG), Mizuno (TYO:8022), Nike (NYSE:NKE), Johnson Outdoors (NASDAQ:JOUT), and private companies TaylorMade, Ping, and Srixron.

Sales Growth

Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Acushnet's annualized revenue growth rate of 7.8% over the last five years was weak for a consumer discretionary business. Acushnet Total RevenueWithin consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Acushnet's recent history shows the business has slowed as its annualized revenue growth of 5.3% over the last two years is below its five-year trend.

This quarter, Acushnet missed Wall Street's estimates and reported a rather uninspiring 7.7% year-on-year revenue decline, generating $413 million of revenue. Looking ahead, Wall Street expects sales to grow 2.9% over the next 12 months, an acceleration from this quarter.

Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Acushnet has done a decent job managing its expenses over the last eight quarters. The company has produced an average operating margin of 12.2%, higher than the broader consumer discretionary sector. Acushnet Operating Margin (GAAP)

This quarter, Acushnet generated an operating profit margin of negative 6%, down 8.6 percentage points year on year.

Over the next 12 months, Wall Street expects Acushnet to maintain its LTM operating margin of 12%.

EPS

We track long-term historical earnings per share (EPS) growth for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable. Acushnet EPS (GAAP)

Over the last five years, Acushnet's EPS grew 89.3%, translating into a solid 13.6% compounded annual growth rate. This performance is materially higher than its 7.8% annualized revenue growth over the same period. There are a few reasons for this, and understanding why can shed light on its fundamentals.

A five-year view shows that Acushnet has repurchased its stock, shrinking its share count by 14.9%. This has led to higher per share earnings. Taxes and interest expenses can also affect EPS growth, but they don't tell us as much about a company's fundamentals.

In Q4, Acushnet reported EPS at negative $0.41, down from $0.05 in the same quarter a year ago. This print unfortunately missed analysts' estimates, but we care more about long-term EPS growth rather than short-term movements. Over the next 12 months, Wall Street expects Acushnet to grow its earnings. Analysts are projecting its LTM EPS of $3.06 to climb by 7.8% to $3.12.

Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Over the last two years, Acushnet has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 3.6%, subpar for a consumer discretionary business.

Acushnet Free Cash Flow Margin

Acushnet's free cash flow came in at $41.97 million in Q4, equivalent to a 10.2% margin. This result was great for the business as it flipped from cash flow negative in the same quarter last year to cash flow positive this quarter. Over the next year, analysts predict Acushnet's cash profitability will fall. Their consensus estimates imply its LTM free cash flow margin of 12.4% will decrease to 9.1%.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to how much money the business raised (debt and equity).

Acushnet's five-year average return on invested capital was 14.3%, somewhat low compared to the best consumer discretionary companies that pump out 25%+. Its returns suggest it historically did a subpar job investing in profitable business initiatives.

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last two years, Acushnet's ROIC averaged 5.4 percentage point increases each year. This is a good sign and we hope the company can continue to improving.

Key Takeaways from Acushnet's Q4 Results

It was good to see Acushnet's full-year revenue forecast beat analysts' expectations. On the other hand, its revenue, operating margin, and EPS fell short of Wall Street's estimates - each of its product segments (clubs, gear, FootJoy) saw revenue contract except for Titleist Golf Balls (its largest segment), which grew 5.4% year on year. Overall, the results could have been better. The stock is flat after reporting and currently trades at $69 per share.

Is Now The Time?

Acushnet may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of Acushnet, we'll be cheering from the sidelines. Its revenue growth has been a little slower over the last five years, and analysts expect growth to deteriorate from here. And while its EPS growth over the last five years has been decent, the downside is its low free cash flow margins give it little breathing room. On top of that, its projected EPS for the next year is lacking.

Acushnet's price-to-earnings ratio based on the next 12 months is 20.5x. While we've no doubt one can find things to like about Acushnet, we think there are better opportunities elsewhere in the market. We don't see many reasons to get involved at the moment.

Wall Street analysts covering the company had a one-year price target of $67.38 per share right before these results (compared to the current share price of $69), implying they didn't see much short-term potential in Acushnet.

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