Strum, Ruger Misses Q2 Earnings Estimates on Lower Sales - Analyst Blog

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The leading publicly traded U.S. firearms maker, Sturm, Ruger & Company, Inc. ( RGR ) reported second quarter 2014 earnings of $1.12 per share, missing the Zacks Consensus Estimate of $1.28 by 12.5%. The reported figure also plunged 31.3% from $1.63 per share earned in the year-earlier quarter on lower sales.

Revenue

The company booked $153.7 million of total revenues during the quarter, down 14.3% from $179.5 million a year ago. Revenues also failed to meet the Zacks Consensus Estimate of $179.0 million. The lackluster performance was due to soft product sales across the board.

Firearms sales dropped 13.5%, while castings sales decreased 76.6% year over year. New product sales represented 18% of firearm sales in the first half of 2014.

Dividend

The company declared a quarterly dividend of 45 cents ($1.80 per share annualized), payable on Aug 29 to shareholders of record as of Aug 15. 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 per share. The previous quarterly payout was 54 cents per share.

Operational Highlights

Gross profit dropped 28.8% to $50.4 million in the quarter from $70.7 million in the year-ago quarter as its sales shifted away from higher-margin firearms accessories sales. Increased depreciation expenses also ate into margins.

Total operating expenses were $17.3 million, down 13.4% year over year. Operating income was down 35.0% to $33.0 million during the quarter from $50.8 million in the second quarter 2013.

Sturm, Ruger & Company's earnings before interest, taxes, and depreciation and amortization (EBITDA) were $42.1 million in the quarter, down 24.6% year over year.

Financial Performance

The company ended second quarter 2014 with cash of $47.4 million versus $55.1 million at the end of 2013.

Cash generated from operations was $35.6 million in the first six months of 2014. The current ratio is at 2.3 to 1 with no outstanding debt.

Capital expenditure was $22.8 million in the first half of 2014, the majority of which was invested in machinery and equipment for new products and to upgrade and modernize manufacturing equipment. It expects to invest about $40 million on capital expenditures this year mainly on new product development.

Sturm, Ruger & Company returned $20.0 million to its shareholders through the payment of 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. Presently, it plans to increase firearm production at a 220,000-square-foot, $26 million gun plant opened in Mayodan last year. The company acquired this facility in September last year.

However, companies like Sturm, Ruger & Company and Smith & Wesson Holding Corporation ( SWHC ) are apprehensive of tighter regulations for the sale of weapons in the wake of a series of unfortunate shooting incidents in the past. The Boston Marathon terror attack on Apr 15, 2013 and the tragic shootout at the Sandy Hook Elementary School Newtown, Connecticut on Dec 14, 2012 had sparked off fierce controversy about the proliferation of firearms.

Sturm, Ruger & Company currently holds a Zacks Rank #3 (Hold). Investors may also look into Marine Products Corp. ( MPX ) and Malibu Boats, Inc. ( MBUU ). Marine Products carries a Zacks Rank #1 (Strong Buy), while Malibu Boats holds a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: RGR , SWHC , MPX , MBUU



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