Higher Gun Sales Propel Strum, Roger & Co Earnings Beat

The leading publicly traded U.S. firearms maker, Sturm, Ruger & Company, Inc. (RGR) reported first quarter 2014 earnings of $1.22 per share, beating the Zacks Consensus Estimate of $1.11 by 9.9%. The reported figure improved 1.7% from $1.20 earned in the year-earlier quarter, driven by higher sales volume.

Revenue

The company booked $169.9 million of total revenues during the quarter, up 9% from the year-ago level of $155.9 million. The reported amount was ahead of the Zacks Consensus Estimate of $164.0 million by 3.6%. The upbeat performance was driven by new product sales.

Firearms sales rose 10.2%, while castings sales decreased 70.7% year over year. New product sales represented 24% of firearm sales in the quarter.

Dividend

The company declared a quarterly dividend of 54 cents ($2.16 per share annualized), payable on May 30 to shareholders of record as of May 16.

These 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 also 54 cents per share.

Operational Highlights

Gross margin dropped 330 basis points to 36% in the quarter from 39.3% 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 $23.2 million, down 4.3% year over year. Operating income grew 2.3% to $38.0 million during the quarter from $37.1 million in the first quarter 2013.

Sturm, Ruger & Company’s earnings before interest, taxes, and depreciation and amortization (:EBITDA) were $47.3 million in the quarter, up 13.0% year over year.

Financial Performance

The company ended first quarter 2014 with cash and cash equivalents of $49.8 million versus $55.1 million at the end of 2013.

Cash generated from operations was $15.8 million. The current ratio is at 1.9 to 1 with no outstanding debt.

Capital expenditure was $9.6 million, 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 $35 million on capital expenditures for this year mainly on new product development.

Sturm, Ruger & Company returned $10.5 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, Smith & Wesson Holding Corporation (SWHC) or Black Diamond, Inc. (BDE) are apprehensive of tighter regulations for the sale of weapons in the wake of a series of unfortunate shooting incidents in the recent 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 Malibu Boats, Inc. (MBUU) carrying a Zacks Rank #2 (Buy).

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Read the Full Research Report on SWHC
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