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Sturm, Ruger & Company Q3 Earnings Badly Miss the Mark

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for those who follow the business end of the sport: High Inventory still hurting Ruger

 

By Steve Symington | More Articles Save For Later 
October 29, 2014 | Comments (0)

Sturm, Ruger & Company (NYSE: RGR  ) may make accurate firearms, but its third-quarter results missed analysts' targets by a mile.

Shares of Ruger fell more than 8% in Wednesday's after-hours trading when it announced that quarterly revenue fell 42.5% year over year to $98.3 million. That translated to a 76.4% plunge in earnings per diluted share to $0.34. Analysts, on average, were looking for earnings of $0.99 per share on sales of $149.1 million. 

Consequently, Ruger also lowered its dividend -- which varies each quarter to remain at approximately 40% of net income -- to $0.14 per share.

Here's what happened 
CEO Michael Fifer says this is a continuation of last quarter's painful results, and declining demand for Ruger's products only continued to accelerate in Q3. Meanwhile, sell-through from independent distributors to retail also declined 44% year over year.

Curiously, Fifer noted that the change in NICS background checks indicates that consumer demand declined only 3% year over year. In addition to that falling demand, however, high inventory levels at retail compounded Ruger's sales declines, which, in turn, caused those retailers to buy fewer firearms than they were selling in an effort to reduce that inventory and generate cash.

To make matters worse, this resulted in aggressive price discounting by many of Ruger's competitors. But Ruger chose not to match those discounts -- a move tht it admits "likely resulted in lost market share."

What's more, Ruger's results were further hurt by a lack of significant new product introductions, as well as continued limited availability of rimfire ammunition. Ruger specifically thinks the latter issue negatively affected sales of .22 rifles, pistols, and revolvers. And though Ruger did launch its new AR-556 modern sporting rifle last quarter, shipments of that rifle were limited, so it didn't have a meaningful impact on the company's financial results. As it stands, new products have represented only around 17% of all Ruger's firearm sales so far in 2014.

Perspective is in order
But that could change going forward. Ruger has already incurred capital expenditures of nearly $29 million so far this year, with the majority spent on modernizing manufacturing equipment and tooling fixtures and equipment for new product introductions. As Ruger continues to focus on new product development going forward, it expects total capex investments for the year to approach $40 million.

For what it's worth -- and with the exception of Ruger's troubling lost market share -- Fifer's comments largely echo the sentiment of Smith & Wesson (NASDAQ: SWHC  ) CEO James Debney in late August. Specifically keeping in mind Smith & Wesson's fiscal Q1 results, which ended on July 31 (and so overlapped Ruger's Q3 by a month), Debney blamed Smith & Wesson's own revenue misfire on "high inventories industrywide resulting from channel replenishment that occurred during an earlier surge in consumer buying." Still, Debney asserted that those high inventory levels would taper off in future quarters as the market returned to a more normalized environment.

How long that normalization will take remains to be seen, but you can bet investors will be prodding Ruger management for more color during Thursday's earnings conference call. For now, Ruger said inventories of finished goods during the quarter increased 24,000 units at independent wholesale distributors, and 39,000 units at the company itself.

Finally, there was no mention of whether Ruger utilized its existing share repurchase authorization, which the company expanded three months ago from $25 million to $100 million. As I noted earlier this year, however, Fifer has consistently made it clear that Ruger doesn't take such repurchases lightly. Rather, the company closely watches a number of historical price metrics and buys back stock only if it believes it's in the best interests of shareholders. Given their front-row seat to this weak quarter as it unfolded, I wouldn't be the least bit surprised if management says during Thursday's call that it chose to leave that repurchase authorization untouched.

 

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It is sure funny how the market didn't see this coming.  Local retailers have been screaming about lack of sales all summer.  Look for price reductions this holiday season.  Time to get those P2P applications in and hopefully get them back in time.  Prices have to drop at the retail level industry wide.  Look for ammo prices to drop as well.  About time we get back to close to normal.  Now if we could get those Dumborats off our case things maybe looking up.  Remember to vote, and spread the work to vote, next week.  Send them a powerful message.

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I'm not surprised the least bit about this.  In fact, I rather expected it.

 

Gun manufacturers make things that LAST....so you don't need to replace them.

 

The "buying frenzy" was bound to come to a conclusion because of "market saturation" (how many guns to ya really NEED?).

 

The ammo shortage and yes even some forum members buying .22's by the thousands as an "investment":  so they could screw fellow members and the public with inflated prices!  Personally, I find it amazin' how many members have all seemed to "find" stockpiles of ammo that they "don't need" all at the same time....and so they try to sell it before the price drops under what they paid for it!  LOL, let 'em EAT IT!  And I'd be willin' to bet that most of the units laying in excess inventory are .22 LR guns.........

 

Guns cost money.  People who actually make money and HAVE money to spend aren't being sperm-donors to increase the population of well-off upper middle-income families that can afford to collect firearms.  Families are smaller and tiny SUV's have taken-over the roadways.  Sure the population goes up, but welfare mom's offspring aren't standin' in line to buy guns at FFL's........  In a phrase:  Market Saturation.

 

When ammo costs less, more folks will buy the new gun and FEED IT!  I'm still using a Smith and Wesson revolver I bought in 1977.  There are PLENTY of folks just like me, that stopped buying guns to put kids through college and broke the habit of buying for the sake of just having something in a box, unused........

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Speaking from experience, it was easier to buy safe queens in the past.  Hell, I have a few from the 90's no problem.  Did I need it, no, but the price was right.  Surplus was everywhere.  Today, I'll buy a new gun for a need, not a whim, prices are too high for whims.

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I'm not surprised the least bit about this.  In fact, I rather expected it.

 

Gun manufacturers make things that LAST....so you don't need to replace them.

 

The "buying frenzy" was bound to come to a conclusion because of "market saturation" (how many guns to ya really NEED?).

 

The ammo shortage and yes even some forum members buying .22's by the thousands as an "investment":  so they could screw fellow members and the public with inflated prices!  Personally, I find it amazin' how many members have all seemed to "find" stockpiles of ammo that they "don't need" all at the same time....and so they try to sell it before the price drops under what they paid for it!  LOL, let 'em EAT IT!  And I'd be willin' to bet that most of the units laying in excess inventory are .22 LR guns.........

 

Guns cost money.  People who actually make money and HAVE money to spend aren't being sperm-donors to increase the population of well-off upper middle-income families that can afford to collect firearms.  Families are smaller and tiny SUV's have taken-over the roadways.  Sure the population goes up, but welfare mom's offspring aren't standin' in line to buy guns at FFL's........  In a phrase:  Market Saturation.

 

When ammo costs less, more folks will buy the new gun and FEED IT!  I'm still using a Smith and Wesson revolver I bought in 1977.  There are PLENTY of folks just like me, that stopped buying guns to put kids through college and broke the habit of buying for the sake of just having something in a box, unused........

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so right Dave .. Market Saturation and the boom and bust cycle for this hobby/sport will continue , as with most business cycles..over producing widgets or whatever to take advantage of policy changes or fear mongering runs it's risks. Been a hell of a run for public gun companies 

   

sorry, tried posting a RGR chart .. basically traded between $10 and $20 from 1985 to 2010 .. then from $10 to $80+  from 2010 to early 2014 .. 

now sitting @ $42 

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Proper way to look at this- if we are talking investment, how has this stock done over the past 5 or ten years? Would you be ahead today? Also if companies surged over anti gun prez elections what might happen in 2016? What promises of a certain left leaning candidate to her "base" might fire us up to buy a few more guns in a hurry? Keep in mind also this wonderfully high market is artifically high due to the government keeping interest rates low, as in your bank wont give you 1% for a CD, we do live in interesting times at least.

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I guess prices will come back to normal levels soon.

 

Does anyone else see some of these issues as a result of the shrinking middle class?

I think less and less people have that extra income to spend on frivolous items. Especially here in NJ.

This is most definitely the case, I know it is for me.  Years ago when I made much less $$ than today I had much more disposable income and I could afford more "wants".  Now I have to focus on my real "needs".  And actually I have a pretty good job, 2 pretty good jobs really, and I still don't have much left over after paying the bills. 

 

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"Normal" seems to be around $20 per share. 

 

400% growth in 5 years sounds pretty spectacular to me.   I was watching Ruger for the last couple of years but was scared to buy.  I've bought rising stocks before and found out why you're not supposed to buy high and sell low.

 

I might consider Ruger but it will have to drop some more.

 

The trick is to figure out what Obama is going to go after next that will cause a buying panic and get in now before Tuesday's election.

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