The leading publicly traded U.S. firearms maker, Sturm, Ruger & Company, Inc.’s (RGR) fourth-quarter 2014 earnings of 53 cents per share comfortably surpassed the Zacks Consensus Estimate of 42 cents by 26.2%. The reported figure was however 60.2% lower from $1.33 per share earned in the year-ago quarter due to lower sales.
Lack of significant product introductions as well as limited demand during the latter half of 2014 affected the company’s results.
The company’s 2014 earnings of $3.22 per share also surpassed estimates by 2.2%. However, earnings plunged 42.3% from the year-ago figure of $5.58 per share.
On a GAAP basis, the company incurred a net loss of 77 cents per share in fourth-quarter but earned $1.95 per share in full-year 2014. The difference between the GAAP and the adjusted figure was on account of one-time expenses of the termination and settlement of defined pension plans.
Revenue
The company reported revenues of $122.6 million in the fourth quarter, lagging the Zacks Consensus Estimate of $160 million by 23.4%. Quarterly revenues also fell 32.6% year over year.
The company booked $544.5 million of total revenue in 2014, down 20.9% from $688.3 million a year ago. Reported revenues barely missed the Zacks Consensus Estimate of $545 million. The lackluster performance was due to soft product sales across the board.
Firearms sales dropped 20.1%, while castings sales plunged 77.3% year over year. New product sales represented 16% of firearm sales in 2014, as compared to 29% in 2013.
Dividend
The company declared a quarterly dividend of 17 cents (68 cents annualized), payable on Mar 27, 2015 to shareholders of record as of Mar 13. This dividend is about 40% of net income.
Payouts vary every quarter as it is based on a percentage of earnings rather than a fixed amount. The company did not take into account the pension plan termination expense while calculating the dividend.
Operational Highlights
Gross margin contracted 730 basis points (bps) to 27.7% in fourth-quarter 2014 from the year-ago quarter. Gross profit declined 46.6% to $34 million year over year.
Gross profit dropped 34.6% to $169.2 million in 2014 from $258.6 million in 2013 due to lower sales.
Total operating expenses escalated 34.8% year over year to $112.8 million in 2014. The increase was attributable to defined benefit pension plan charges incurred by the company in 2014. Operating income was down 67.8% to $56.3 million from $174.9 million in 2013.
Sturm, Ruger & Company’s earnings before interest, taxes, and depreciation and amortization (EBITDA) were $126.3 million in 2014, down 35.5% year over year.
Financial Performance
The company ended 2014 with cash of $9.0 million compared with $55.1 million at the end of 2013.
Cash generated from operations was approximately $55.6 million in 2014 as compared to $119.7 million in 2013. The current ratio is at 2.0 to 1 with no outstanding debt.
Capital expenditure was $45.6 million in 2014, down from $54.6 million in 2013. The company expects to make capital expenditure of about $30 million in 2015.
Sturm, Ruger & Company returned $55.4 million to its shareholders through the payment of dividends and buybacks in 2014. Of this, $31.4 million was paid as dividends.
Our Take
This Connecticut-based company is the only full-line manufacturer of American-made firearms. It offers consumers more than 400 variants of over 30 product lines.
Firearm companies like Sturm, Ruger & Company, and Smith & Wesson Holding Corporation (SWHC) are hit by low demand for weapons as the earlier rush to possess firearms triggered by the fear of tighter regulations has ebbed to a large extent, which is reflected in the soft sales of the company in 2014.
The company is experiencing persistently weak demand for its products, as is evident from the 20.9% year-over-year decline in sales in 2014. As a result, the company’s estimated sales to independent distributors and sell-through from independent distributors to retail also decreased 21% and 20% year over year, respectively, reflected by the 12% fall in National Instant Criminal Background Check System background checks.
Sturm, Ruger & Company currently holds a Zacks Rank #3 (Hold).
Other Peer Releases
Louisiana-based Pool Corp. (POOL) reported a fourth-quarter loss of 5 cents per share, narrower than the Zacks Consensus Estimate of a loss of 7 cents.
Malibu Boats, Inc. (MBUU) reported second-quarter fiscal 2015 (ending Dec 31, 2014) earnings of 24 cents per share, barely missing the Zacks Consensus Estimate of 25 cents.
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