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By Steve Pike If you thought the grounds crew at Bethpage Black had it bad at last week's U.S. Open, at least they get to start over this week. Not so for Callaway Golf Company (NYSE: ELY). The company's stock continues to get hammered on Wall Street. Callaway's stock ended June 23 at a 52-week low of $5.09 per share after trading as low as $5.06.
Clearly, the company's private placement of 1,250,000 shares of 7.50 percent Series B Cumulative Perpetual Convertible Preferred Stock earlier this month did not impress the Street. Callaway's stock is now trading at more than $3 below what it was trading for in early May.
Since May 1 when ELY was at $8.89 per share, the stock has steadily declined to where it finished as low as $5.26 per share on June 19 before finishing the week at $5.36.
Earlier in the month, Callaway announced the preferred stock from its private placement will be convertible, at the holder’s option, in certain circumstances, into common stock of Callaway at an initial conversion rate of 14.1844 shares of Callaway’s common stock per share of preferred stock, which is equivalent to an initial conversion price of approximately $7.05 per share.
In its latest filing with the Securities and Exchange Commission, Callaway said its line of credit had accelerated to $210 million (plus approximately $8.5 million in outstanding letters of credit) as of May 31, 2009.
In conjunction with its announcement of a preferred stock offering, Callaway also said that its board of directors elected to reduce its dividend on its common stock by six cents per share. That move, according to Callaway, allows it to retain an additional $15.2 million in cash on an annualized basis. The company said it would save $11.4 million over the balance 2009 as a result of the decision.
Wall Street, however, wasn't listening.
In a recent research report, Hayley Wolff of Rochdale Securities said Callaway management "has been slow to recognize the degree of weakness in the economy, its affect on discretionary spending and the impact on sales of high end golf equipment.''
In maintaining a 'Hold'' rating a on Callaway stock, Wolff also wrote that "Callaway's balance sheet has steadily weakened since 2006. It is now catching up with the company.''
"We continue to stress that Callaway needs to deal with eroding metal wood shares in order to meet long term operating margin targets,'' Wolff said. "Shares are near all time lows. Also, Callaway needs to reduce OPEX at a greater rate than currently doing. It is disappointing to see such a great golf brand and formerly great company reduced to this.''
Ouch.
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