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Microsoft Corporation Message Board

puzzled48 37 posts  |  Last Activity: Aug 16, 2014 2:08 PM Member since: Nov 30, 1999
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  • puzzled48 puzzled48 Aug 16, 2014 2:08 PM Flag

    Ruger's borrowing rate Is not really zero. On their line of credit, the rate is about 2.55%.

    "The Company has a $40 million revolving line of credit with a bank. This facility is renewable annually and terminates on June 15, 2015. Borrowings under this facility bear interest at LIBOR (0.555% at June 28, 2014) plus 200 basis points."

    This means the borrowing rate is about 2.55%, which admittedly is rather low. The question is, what is the normalized EPS for Ruger? Is it $4/share? How much of this is free cash flow, and how much needs to be reinvested as CAPEX? Are gun sales about to skyrocket, after the events in Ferguson, Missouri, where police stopped providing security?

    The next question is, are their any shareholders who would be willing to sell a large block of shares at today's depressed price?

    Finally, it is my personal belief that a corporate inversion would be achievable and would boost EPS more significantly than any other maneuver. Never see this discussed, except dismissively.

  • ATK might be worth a second look--down 4% on low volume and no news. Strong earnings last week. Sells bullets to the feds. Also aerospace biz.

  • puzzled48 puzzled48 Aug 2, 2014 6:52 PM Flag

    It appears that there are three buildings which are not used for manufacturing. From the 10-K:

    The Company’s manufacturing operations are carried out at three facilities. The following table sets forth certain information regarding each of these facilities:
    Approximate
    Aggregate Usable
    Square Feet
    Status
    Segment
    Newport, New Hampshire
    350,000
    Owned
    Firearms/Castings
    Prescott, Arizona
    230,000
    Leased
    Firearms
    Mayodan, North Carolina
    220,000
    Owned
    Firearms
    Each facility contains enclosed ranges for testing firearms. The lease of the Prescott facility provides for rental payments, which are approximately equivalent to estimated rates for real property taxes.

    The Company has three other facilities that were not used in its manufacturing operations in 2013:
    Approximate
    Aggregate Usable
    Square Feet
    Status
    Segment
    Southport, Connecticut
    25,000
    Owned
    Corporate
    Newport, New Hampshire
    (Dorr Woolen Building)
    45,000
    Owned
    Firearms
    Enfield, Connecticut
    10,000
    Leased
    Firearms
    There are no mortgages or any other major encumbrance on any of the real estate owned by the Company.
    The Company’s principal executive offices are located in Southport, Connecticut

  • puzzled48 puzzled48 Aug 2, 2014 3:19 PM Flag

    OK. Maybe Ruger should stop reporting the backlog, since it has no implications for sales. My underlying question is, when is this stock fairly priced, compared with its prospects? Is it a buy, today, based on "normal" earnings of $3.32, and a share price of $50? Or is my estimate of "normal" earnings too low, as you have suggested?

    Should the company cut costs by closing the HQ building in CT, and moving management into the partially occupied NC facility?

  • puzzled48 puzzled48 Aug 2, 2014 12:17 PM Flag

    Maybe. Perhaps you could answer the two questions I presented with your explication. For example, when will the backlog of orders be satisfied?

  • Suppose a "normal" level of firearms sales from distributors to retailers is 400,000 units per quarter. If units sell for $300 each, this corresponds to "normal" revenues of $120 million per quarter. If the operating margin remains at 21%, this implies $25.2 million of pretax income per quarter, or about $16.6 million after-tax, or about $0.83 EPS per quarter, or about $3.32/year. Ruger's market cap is $1.0 billion at $50/share. A $100 million share repurchase would reduce the share count by 10%, assuming the shares remain at $50. Earnings would rise by about 10%, less interest expense. Presently Ruger is spending about $10 million per quarter stockpiling inventory of firearms, When this inventory replenishment is completed, in October, Ruger will have an additional $10 million per quarter to repurchase shares without borrowing. Whether it makes sense to borrow to repurchase shares earning $3.32 per year depends on whether money can be borrowed at less than 6.64% per annum. Not too exciting. Our only hope is that "normal" earnings are greater than $3.32 per year--this is not inconceivable.

    If the backlog is 1 million units, and "normal" units shipped are 400,000 per quarter, and if production continues at 500,000 units per quarter, it will take 10 quarters to deplete the backlog. I mention this fact because I see that there is some confusion about this number.

    If we scrutinized Ruger carefully when it was at $75 per share, and now it's at $50, our eyes should be bulging out of our heads. The shares appear to be in the bargain bin......

  • puzzled48 puzzled48 Jul 31, 2014 4:31 PM Flag

    Using trailing P/E ratios, RGR=8.92x EPS and SWHC=8.70x EPS. Not much different. .

  • puzzled48 puzzled48 Jul 31, 2014 3:20 PM Flag

    I meant, does it really seem likely RGR earnings will fall, and SWHC earnings will jump?

  • puzzled48 puzzled48 Jul 31, 2014 3:19 PM Flag

    Whether SWHC is cheaper than RGR depends on whether you believe consensus SWHC forward estimates. Does it really seem likely that RGR earnings will fall, and SWHC earnings will fall? I doubt it.

    Also, SWHC has its largest factory in Massachusetts. Ruger is in New Hampshire, AZ, and NC. If SWHC had a do-over, they would not be in MA.. Better to be in Serbia, or almost anywhere else.

  • puzzled48 puzzled48 Jul 31, 2014 2:59 PM Flag

    Maybe made-in-the-USA isn't as important as it used to be. The U.S. Army
    official handgun is an (Italian) Beretta M-9.

    European handguns are gaining market share in the U.S., according to the NSSF.

  • puzzled48 puzzled48 Jul 31, 2014 1:31 PM Flag

    I think the estimated units sold from Distributors to retailers might be about 350,000 units, during a period of "normal" demand.

    I agree that the greatest opportunity for Ruger is from financial engineering. I mentioned a corporate inversion a few times, but nobody seemed to agree.

    The second possibility, which was already suggested by dimeshowman, is to assume more debt. If debt costs zero percent per annum, one could repurchase all the shares at no cost, and increase earnings to infinity. If debt costs 5% annually, one could repurchase 20 million shares at $50 for $1 billion, at a cost of $50 million per year. If debt is 10%, the entire company could be purchased, and all the shares retired, for an annual cost of $100 million per year. This is why I thought there would be a leveraged buyout. The money that is being spent on dividends could be used to pay debt service. if I were doing this transaction, I would keep Mr. FIfer, because he seems to be a brilliant manager.

    Estimated units
    sold from
    Distributors to
    Retailers
    2014 Q2 388900
    2014 Q1 565400
    2013 Q4 495300
    2013 Q3 521700
    2013 Q2 560200
    2013 Q1 514200
    2012 Q4 504700
    2012 Q3 396900
    2012 Q2 410300
    2012 Q1 460800
    2011 Q4 291800
    2011 Q3 244700
    2011 Q2 264400
    2011 Q1 284300

  • Reply to

    What I don't understand

    by daniel.kiely Jul 30, 2014 3:15 PM
    puzzled48 puzzled48 Jul 30, 2014 6:12 PM Flag

    Mr. Fifer said (Seeking Alpha has transcript) he'd buyback share based on his estimate of forward earnings.

    "if the stock price gets substantially below what I feel is reasonable for our long-term outlook for earnings. Then we are going to opportunistically buy stock..."

  • puzzled48 puzzled48 Jun 26, 2014 11:39 PM Flag

    Mr. Fifer did not repurchase any shares in first quarter, even though price fell to $59. It might be best to wait until management begins repurchasing shares before plunging into this stock too deeply. You will know it by seeing the shares rise on heavy volume, in the absence of any news.

    Mr. Fifer said in the May 5 shareholder letter that it would not be unusual for demand to drop off substantially after a surge like last year. SWHC guidance was pretty poor. It seems to me that SWHC scheduled an extra week of plant closing, that did not occur last year in the year-ago quarter.

  • puzzled48 puzzled48 Jun 26, 2014 6:00 PM Flag

    Why do you saturate the message board with your postings? Hundreds of message per week, many of them off-topic....

  • 1. A strong adj NICS in June

    2. A corporate inversion to Switzerland.

    Any suggestions?

  • Reply to

    Free cash flow....

    by libertee4all Jun 24, 2014 10:38 AM
    puzzled48 puzzled48 Jun 24, 2014 4:51 PM Flag

    I think sales from distributors to customers may have plunged, and SWHC has worked through all their backlog. It's difficult to prove this with the limited information we have available.

  • Reply to

    Free cash flow....

    by libertee4all Jun 24, 2014 10:38 AM
    puzzled48 puzzled48 Jun 24, 2014 3:07 PM Flag

    CAPEX in 2014 was a record amount, due to the purchase of Tritown Precision Plastics for $24 million, and $30.4 million invested in a new SAP system. Therefore, you can't really say CAPEX in 2014 was typical, and free cash flow in 2014 was not typical due to these one-time expenses. Management claims maintenance CAPEX is only $25 million.

    As for the share repurchases, they were a stroke of genius. Management purchased 10.2 million shares at average cost of $11.3/share, and now the shares are at $15, so the profit on this transaction was about $3.7x10.2 million = $38 million. Share count is now about 10% less than before.

    As for the fair valuation of SWHC and Ruger, it depends on the organic growth rate for firearms sales in the United States, and on margins. It's very difficult to estimate the sales growth rate right now due to (1) seasonal slowdown, and (2)surge comparison in 2013.

    I thought the Motley Fool article was a pretty superficial piece, slapped together in haste. I'm not sure why Google posts Motley Fool articles as news stories.

  • Crain's says CEO Wasson has a fiduciary duty to shareholders. Links to Barclay's analyst report.

  • Reply to

    Selloff Is Way Overdone -- Good CC

    by southshoretrader Jun 19, 2014 6:12 PM
    puzzled48 puzzled48 Jun 19, 2014 9:53 PM Flag

    Nope.

    vkncaa is a very gentle, polite individual. Not Scott Hamann.

  • puzzled48 by puzzled48 Jun 19, 2014 7:28 PM Flag

    SWHC plunged 11% after hours today, after guiding forward FY2015 revenue=$130 million and EPS=$0.23-25 for Q1, and $600 million revenue and $1.35 EPS for FY2015. Last year Q1 EPS was $0.41, revenue=$171 million, and FY2014 EPS=$1.49 and revenue=$626 million.

    Mr. Debney said important factors for declining revenue and profits included declining demand for MSR's, seasonal summer slowdown, increased operating expense due to new software, and difficult comparisons with the surge. Backlog of orders was $230.4 million, or about one quarter of production.

    It appears that Ruger's CEO. Michael Fifer was prudent to conserve cash, and avoid share buybacks at inflated prices in first half of 2014. Unlike SWHC, Ruger has plenty of cash, and no debt.

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