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Latest Flub Punishes Callaway

The stock falls nearly 11% a day after its warning.

Callaway Golf

(ELY) - Get Callaway Golf Company Report

slumped a day after the golf-club maker put its third-quarter results well below Wall Street's forecasts, citing weakness in its Top-Flite and Hogan product lines.

The company expects to post a loss of 17 cents to 19 cents a share for the quarter, including various charges. Excluding items, the company projects a loss of 12 cents to 14 cents a share. Analysts polled by Thomson First Call had an average estimate for earnings of 8 cents a share.

Callaway estimates sales of $193 million to $195 million, well below the consensus target of $223 million. A year earlier, Callaway recorded a loss of 7 cents a share, or 1 cent excluding items, on sales of $221 million.

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Shares of Callaway were lower by $1.53, or nearly 11%, to $12.57.

The company said that sales of its core brands, Callaway and Odyssey, have gained market share and top-line growth so far in 2006. But sales of the Top-Flite and Hogan products haven't performed to expectations and have offset the gains in the core brands, the company said.

Moreover, Callaway estimated gross margins of 35% for the third quarter, down from 40% a year ago. The company said its margins have been at "unacceptable levels" in recent years, further hurt by issues at Top-Flite, which it brought out of bankruptcy in 2003.

"We recognize the importance of improving gross margins as it relates to our overall profitability, and have already begun implementing initiatives which are expected to significantly improve gross margins in 2007 and beyond," the company said.

Callaway has had a tough year, with results for both the first and second quarters coming in beneath analysts' initial targets amid weakness in both margins and sales.