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Sturm, Ruger & Co. Inc. Message Board

  • imarugerfan imarugerfan Apr 29, 2013 6:23 PM Flag

    TO: captainwho2

    I answer you in a new thread in case it would get lost in the complex post where you challenged me.

    1) I did NOT say you were stupid.
    2) Revenue did not go up by 18.4% from Q4 as you said. Revenue went from 141.8 million to 155.9 million. that is about 10%. I think you probably using the profit increase percentage by mistake.
    3) I did NOT say there would be no increase in production. I said the increase would be small.
    4) I also said that revenue and profit could increase from sources other than production increase.
    5) If you go back and check, you will see that our primary disagreement was whether NICS increase would matter for Q1. My position was (and still is) that it did not. Your position was that NICS did matter for Q1.
    There is little point in continuing the argument but I think it is accurate to say that you believed more NICS meant more Ruger sales because every gun maker was at full capacity, distributor and retailer inventories were empty and Ruger maintained its market share. My belief was that since Ruger was at full capacity and filling its multiple-month-long stack of backorders (not current orders), that all the NICS increases in the world could not cause Ruger to produce above its capacity. An i believed that capacity increase would be small.
    6) Unfortunately, Ruger does not reveal unit count production numbers. That would indicate how much additional capacity they had since they were at full production both quarters. Then we could identify how much additional revenue was from added capacity and how much was from other sources like price increases and change in product mix.
    7) I think Q1 results support my view. Sales revenue went up 10%. Some of that might have been price increases (especially on accessories like magazines). Some might have been from product mix change. So actual capacity increase was 10% or less. Now compare that to NICS increase
    (continued in next post)

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    • Right, I made a math error (I misred my spreadsheet and read 131.65M as Q4 revenue, which was the analysts est for Q1). Should have had my reading glasses on.

      So they spent $7.7M on CapEx for production of two new handguns and to increase production capacity on older models and got a 10% Sales Revenue increase when everything they were producing was already sold. If you think they did not increase their production capacity appreciably you are deluding yourself to keep your ego propped up. As I recall you were very adamant at first that the they were at full capacity and that was that LOL, and when I said they were continually improving their capacity through CapEx, you were very condescending regarding how foolish I was.

      NICS are an estimate of overall industry demand. They use their estimated sellthru numbers AND the Adj. NICS numbers to determine if they are losing market share, relative to the overall industry. They use this to determine how much CapEx that they deem is appropriate to meet their goals of trying to continue to gain market share.

      If you read the conference call carefully for Q4, Fifer actually stated that they might actually be losing production of AR-15s because they produced so few to begin with that they were lower down on the totum pole with the suppliers on asking for an increase in parts supply from them. I discovered this just the other day upon re-reading the transcript. So you can forget about AR-15s having had a measurable effect upon their sales revenue increase. I know you got the idea from me (without crediting me), so it is ironic that you are wrong, lol.

      Anyway, that is why NICS matter. I'm done. You don't get it. I'm totally fine with that. The end.

      PS: Didn't expect you to admit you were wrong or anything.

      • 1 Reply to captainwho2
      • PS: In the conference call Fifer said they wouldn't do any gouging type price increases beyond the typical ones they do every January. So you can forget about the price increase angle, as far as that being responsible for the 10% revenue increase vs Q1. Nope, it was due to production capacity improvement.

        "In the first quarter of 2013, capital expenditures totaled $7.7 million, much of it related to new products and the expansion of production capacity. We expect to invest approximately $30 million for capital expenditures during 2013."

    • (continued)........

      Now compare the 10% sales revenue increase of 10% to the NICS increase. How man actual NICS were there in Oct, Nov, Dec 2012 compared to Jan, Feb, Mar 2013? If NICS rose by a meaningful percentage greater than 10%, I would say that is evidence I was correct.

      • 1 Reply to imarugerfan
      • btw, note that net profit went up about 3.8 million on a 14.1 million sales increase. That is equal to about 27% margin on the additional revenue (assuming prior margin continued unchanged from Q4 on the first 141.8 million produced . Compare that to the margin of the first 141.8 million which was about 13.6%.

        Before you get too excited, remember that margin SHOULD increase as volume increases due to efficiencies of scale. I really don't know if 13.6% is good or bad for the 141.8 million. And I really don't know whether 27% is good or bad for the additional 14.1 million. So I make no praise or criticism. (Given my belief that Ruger's management, like virtually all public companies, is grossly overpaid, you know I believe the profit margin should be better than it is by the amount of their over-compensation)

        I am heartened that the profit margin on the marginal increase of 14.1 was much more that on the first 141.8 million because if it were not much bigger it would be worrisome. It would be worrisome because most companies actually operate very near their break-even points. Therefore, small increases above break-even volume generate large profit increases. Conversely, small declines in volume generate large profit decreases.

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