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Strum, Ruger (RGR) Beats on Q1 Earnings, Revenues Up Y/Y

Leading publicly traded U.S. firearms maker, Sturm, Ruger & Company, Inc.’s RGR first-quarter 2016 earnings of $1.21 per share surpassed the Zacks Consensus Estimate of 96 cents by 26%. Earnings also surged 49.4% from 81 cents earned in the year-ago quarter on higher sales.

Revenues

The company reported revenues of $173.1 million in the first quarter, up 26.4% from the prior-year figure of $137 million. The upbeat performance was due to elevated product sales across all segments.

Firearm sales (comprising 99.1% of total sales) surged 26.5%, while castings sales increased 18.2%. New product sales accounted for 29% of total firearm sales in the quarter.

Dividend

The company declared a first-quarter dividend of 48 cents per share, payable on May 27, 2016 to shareholders of record as of May 13. The dividend represents about 28.3% of the company’s net income.

Payouts vary every quarter as it is based on a percentage of earnings rather than a fixed amount. The company usually does not take into account the pension plan termination expense while calculating the dividend.

Operational Highlights

Gross margin expanded 390 basis points (bps) year over year to 34.1% in first-quarter 2016. Gross profit increased 42.8% to $59.1 million.

Total operating expenses increased 30.2% to $22.9 million owing to higher selling, general and administrative expenses. Operating income was up 52.1% to $36.2 million from $23.8 million a year ago.

Sturm, Ruger’s earnings before interest, taxes, and depreciation and amortization (EBITDA) were $44.8 million, up 34.7%.

Financial Performance

The company ended the first quarter of 2016 with cash of $80.5 million, compared with $69.2 million at 2015 end.

Cash generated from operations was approximately $29.4 million in the first quarter, compared with $32.8 million a year ago. The current ratio is at 2.6 to 1, with no outstanding debt.

Capital expenditure was $6.3 million in the first three months of 2016, up from $4.3 million a year ago. The company expects capital expenditure of about $25 million in 2016.

Sturm, Ruger returned $6.6 million to its shareholders through dividend payments during the first quarter. No shares were repurchased during this period.

Our Take

Sturm, Ruger is a major manufacturer of rugged, reliable firearms for the commercial sporting market. This Connecticut-based company is the only full-line manufacturer of American-made firearms, with more than 400 variations of over 30 product lines.

Sturm, Ruger has been witnessing strong demand for firearms, especially those used for self-defense such as centerfire pistols. This increase in demand is driving sell-through across the channels and has aided to reduce the company's inventory levels. In fact, during the first quarter, the company’s net orders received shot up 157.9% year over year.

The estimated sell-through of the company’s products from independent distributors to retailers increased 17.3% on a year-over-year basis. The company’s product inventory at independent distributors declined by 54,300 units during the quarter, while the finished goods inventory went down by 14,600 units.

Zacks Rank

Sturm, Ruger & Company currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the same industry include Smith & Wesson Holding Corporation SWHC, Pool Corp. POOL and Marine Products Corp. MPX. While Smith & Wesson sports a Zacks Rank #1 (Strong Buy), both Pool Corp. and Marine Products carry a Zacks Rank #2 (Buy).

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POOL CORP (POOL): Free Stock Analysis Report
 
STURM RUGER&CO (RGR): Free Stock Analysis Report
 
SMITH & WESSON (SWHC): Free Stock Analysis Report
 
MARINE PRODUCTS (MPX): Free Stock Analysis Report
 
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