Big Gun Makers’ Sales, Earnings Continue to Slide

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Sturm, Ruger and Vista Outdoor reported their first quarter 2019 earnings in the last couple of days and the two firearms industry giants and both reported lower earnings.

The introduction of new products is helping Ruger’s results, but inventories continue to rise. Here are some highlights from Ruger’s press release:

  • In the first quarter of 2019, net sales and earnings per share decreased 13% and 9%, respectively, from the first quarter of 2018 due to a decline in overall market demand, as evidenced by the 8% decrease in National Instant Criminal Background Check System (“NICS”) background checks (as adjusted by the National Shooting Sports Foundation).
  • Improved price realization in the first quarter of 2019 drove profitability during the quarter.
  • Sales of new products, including the Pistol Caliber Carbine, the EC9s pistol, the Security-9 pistol, and the Precision Rimfire Rifle, represented $20.9 million or 20% of firearm sales in the first quarter of 2019. New product sales include only major new products that were introduced in the past two years.
  • During the first quarter of 2019, the Company’s finished goods inventory increased by 52,000 units and distributor inventories of the Company’s products decreased by 25,000 units. In the aggregate, total Company and distributor inventories increased 27,000 units during the quarter.
  • Cash used by operations during the first quarter of 2019 was $10.3 million. At March 30, 2019, our cash and short-term investments totaled $135 million. Our current ratio is 4.1 to 1 and we have no debt.
  • In the first quarter of 2019, capital expenditures totaled $2.7 million. We expect our 2019 capital expenditures to total approximately $25 million, most of which relate to new product introductions.
  • In the first quarter of 2019, the Company returned $4.9 million to its shareholders through the payment of dividends.
  • At March 30, 2019, stockholders’ equity was $273.9 million, which equates to a book value of $15.69 per share, of which $7.73 per share is cash and short-term investments.

As for Vista (which is more diversified than Ruger) their press release noted “Sales and margin pressure in the Shooting Sports segment” as a drag on earnings. That includes reduced ammunition demand . . .

  • Sales were $515 million, down 10 percent from the prior-year quarter. The decline was caused by the sale of Eyewear in the second quarter, lower sales in hydration and hunting and shooting accessories in the Outdoor Products segment, and lower demand within firearms.
  • Gross profit was $99 million, down 9 percent from the prior-year quarter. Adjusted gross profit was $103 million, down 8 percent from the prior-year quarter. The decrease in gross profit is due to the sale of eyewear and lower sales.
  • Operating expenses were $136 million, compared to $125 million in the prior-year quarter. Adjusted operating expenses were $92 million, compared to $123 million in the prior-year quarter. The decrease in operating expenses was driven primarily by the sale of eyewear, cost savings initiatives and lower overall selling costs.
  • Interest expense was $11 million for the quarter, compared to $12 million in the prior-year quarter. The decrease was due to overall lower debt balance, partially offset by a higher average interest rate.
  • Tax rate was (3) percent, compared to 42 percent in the prior-year quarter. The adjusted tax rate was 170 percent, compared to 46 percent in the prior-year quarter.
  • Fully diluted earnings per share (EPS) was $(0.84), compared to $(0.28) in the prior-year quarter. Adjusted EPS was $0.01, compared to $(0.22) in the prior-year quarter.

American Outdoor, which is also somewhat diversified, thought not as widely as Vista, reported its most recent quarterly results a month ago. From their press release . . .

  • Quarterly net sales were $162.0 million compared with $157.4 million for the third quarter last year, an increase of 2.9%.
  • Gross margin for the quarter was 33.4% compared with 29.8% for the third quarter last year.
  • Based upon long-term sales forecasts for its Electro-Optics operating unit, the company has decided to restructure and combine that business with its Outdoor Products & Accessories operating unit in order to drive efficiencies and increase operating performance.  As a result of those forecasts, the company conducted an evaluation to assess the fair value of the Electro-Optics operating unit and, as a result, recorded a $10.4 million partial impairment of the goodwill in that operating unit during the third quarter.
  • Including that impairment, the company recorded a quarterly GAAP net loss of $5.7 million, or $(0.10) per diluted share, compared with $11.4 million, or $0.21 per diluted share, for the comparable quarter last year.  Prior year GAAP results included a one-time, tax reform benefit of $0.17.  Excluding the impairment, quarterly GAAP net income in the current third quarter would have been $4.7 million, or $0.09 per diluted share.
  • Quarterly Non-GAAP net income was $8.9 million, or $0.16 per diluted share, compared with $4.7 million, or $0.09 per diluted share, for the comparable quarter last year. GAAP to non-GAAP adjustments to net income exclude a number of acquisition-related costs, including amortization, one-time transaction costs, fair value inventory step-up expense, one-time tax reform benefits, and the goodwill impairment from the Electro-Optics division. For a detailed reconciliation, see the schedules that follow in this release.
  • Quarterly non-GAAP Adjusted EBITDAS improved to $24.4 million, or 15.0% of net sales, compared with $20.0 million, or 12.7% of net sales, for the comparable quarter last year.
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