Tariffs Only Creating Indirect Headwind For Sturm Ruger

By Eric Smith

Although Sturm, Ruger & Company Inc. sources steel domestically, meaning the new tariffs on Chinese products aren’t directly impacting the gun manufacturer, the rising demand for U.S. steel is causing some indirect headwinds for the company.

“Demand has risen tremendously recently, as manufacturers who have been getting their steel from overseas look to find domestic sources,” Sturm Ruger President and CEO Christopher Killoy said on Thursday’s conference call with analysts. “This has led to some price increases and some shortages of raw materials. Our purchasing folks really have been working very closely with our suppliers to ensure that we have adequate inventory to support what we need for production. Our projections currently indicate that our production will not be impacted, but it’s a tighter inventory situation that we would like and that we’ve seen in quite a while. So that’s something we’re keeping a close eye on.”

Though the supply issue hasn’t emerged yet, look for that headwind to accelerate in third quarter as more companies seek domestic steel in response to the escalating trade war between the U.S. and China

In the meantime, Sturm Ruger reported that earnings for the second quarter ended June 30 rose 48.9 percent while sales declined 2.7 percent. Earnings reached $15.2 million, or 86 cents a share, against $10.2 million, or 57 cents, a year ago. Sales were $128.4 million, down from $131.9 million.

For the first six months, net sales were $259.6 million and diluted earnings were $1.68 per share. For the corresponding period in 2017, net sales were $299.2 million and diluted earnings were $1.79 per share.

Steel pricing and availability might be an issue moving forward, but when asked about other raw materials, such as wood, resins or waxes, Killoy noted that there haven’t been the same type of supply issues and none appear to be on the horizon.

“I think we’re in pretty good shape on wood and the rest of the raw materials that we consume at Ruger,” Killoy said. “It’s primarily steel that we’re keeping our eye on and making sure from an allocation standpoint that we don’t want to lose our spot in line, so to speak.”

Offsetting the challenges of sourcing steel, Sturm Ruger built some runway for the company with four new products in Q2, driving demand as the national landscape flattens.

“The estimated unit sell-through of products from independent distributors to retailers in Q2 increased 5 percent from the comparable prior year period,” Killoy said. “For the same period, the National Instant Criminal Background Check System background checks, or NICS checks, decreased 8 percent. The estimated unit sell-through of our products from the independent distributors to retailers decreased 1 percent in the first half of 2018 from the comparable prior year period. For the same period, NICS checks decreased 3 percent.

“We believe our outperformance of NICS in both the second quarter and first half of 2018 is attributable to the strong reception of four major new products that we launched this past December.”

These include the Pistol Caliber Carbine, or PCC; the EC9s pistol; the Security-9 pistol and the Precision Rimfire Rifle. Killoy said new product sales represented $75.5 million, or 29 percent of firearm sales, in the first half of 2018, and he added that the reception among distributors has been positive.

“They love the new products,” he said. “It helps a little bit with what we would call a halo effect around the entire Ruger product line. When the distributor salesperson is making an outbound call and he’s got a hot new Ruger product to talk about, it really has a halo effect on their business and our business.”

However, Sturm Ruger production in the first half of 2018 was about 17 percent less than 2017 in order to clear inventory with the company’s distributors, Killoy said. The combined inventory in Sturm Ruger’s warehouses and at independent distributors decreased more than 200,000 units since last June for a reduction of almost 40 percent.

But, Killoy added, “We plan to increase production in the latter half of 2018 to replenish inventories of the products in the strongest demand.”

Photo courtesy Strum Ruger

[author] [author_image timthumb=’on’]https://s.gravatar.com/avatar/dec6c8d990a5a173d9ae43e334e44145?s=80[/author_image] [author_info]Eric Smith is Senior Business Editor at SGB Media. Reach him at eric@sgbonline.com or 303-578-7008. Follow on Twitter or connect on LinkedIn.[/author_info] [/author]