Freedom Group’s Q3 Reveues Jump 20 Percent

Freedom Group, the parent of Remington Arms, reported sales increased 20.2 percent to $237.9 million from $198.0 million. Net earnings applicable to shareholders improved to $15.6 million from $1.7 million a year ago.

Its brands also include Bushmaster Firearms, DPMS/Panther Arms, Marlin, H&R, The Parker Gun, Mountain Khakis, Advanced Armament Corp., Dakota Arms, Para USA and Barnes Bullets.

Firearms

Net sales for the three months ended Sept. 30, 2012 were $130.3 million, an increase of $24.7 million, or 23.4 percent, as compared to the three months ended Sept. 30, 2011. Centerfire rifle sales increased $20.4 million, while handgun sales increased $3.8 million and shotgun sales increased $3.6 million. These increases were primarily the result of strong market demand for modern sporting products, as well as volumes associated with our handgun introductions and our new shotgun offerings. These increases were partially offset by decreased sales of rimfire rifles of $1.2 million, and decreased sales of other firearms and firearm products of $1.9 million.

Gross profit for the three months ended Sept. 30, 2012 was $40.3 million, an increase of $9.5 million, or 30.8 percent, as compared to the prior-year period. Gross margin was 30.9 percent for the three months ended Sept. 30, 2012 and 29.2 percent for the three months ended Sept. 30, 2011. The increase in gross profit was primarily due to higher sales volumes and favorable sales mix in certain product lines of $9.2 million and favorable pricing of $2.0 million, partially offset by higher other costs of $1.6 million, primarily resulting from scrap adjustments.

Ammunition

Net sales for the three months ended Sept. 30, 2012 were $94.9 million, an increase of $12.6 million, or 15.3 percent, as compared to the three months ended Sept. 30, 2011. Sales of centerfire ammunition increased $4.6 million, and sales of rimfire ammunition increased $2.7 million. In addition, sales of shotshell ammunition increased $0.5 million, while sales of components and other ammunition products increased $4.8 million. These increases were the result of improved market demand and factory production.

Gross profit for the three months ended Sept. 30, 2012 was $30.3 million, an increase of $10.2 million, or 50.7 percent, as compared to the prior-year period. Gross margin was 31.9 percent for the three months ended Sept. 30, 2012 and 24.4 percent for the three months ended Sept. 30, 2011. The increase in gross profit was primarily due to higher sales volumes and favorable sales mix in certain product lines of $8.4 million, favorable pricing of $1.2 million and lower other costs of $1.4 million. These increases were partially offset by lower hedging gains of $0.8 million.

All Other

Net sales were $12.7 million in all other businesses, which includes Mountain Khakis, for the three months ended Sept. 30, 2012, an increase of $2.6 million, or 25.7 percent, as compared to the prior year period due to higher sales volumes in our various accessories and apparel businesses.

Gross profit for the three months ended Sept. 30, 2012 was $5.4 million, an increase of $1.1 million, or 25.6 percent, as compared to the prior-year period gross profit of $4.3 million. Gross margin was 42.5 percent for the three months ended Sept. 30, 2012 and 42.6 percent for the three months ended Sept. 30, 2011. The $1.1 million increase in gross profit was primarily related to increased sales in our accessories and apparel businesses.

Total operating expenses for the three months ended Sept. 30, 2012 were $48.7 million, an increase of $12.0 million, or 32.7 percent, as compared to the prior-year period. Selling, general and administrative expenses increased $13.4 million, or 43.4 percent.

The primary components comprising this $13.4 million increase included increased incentive compensation expense of $6.9 million, increased contributions of $2.2 million, increased salaries and benefits expense of $2.1 million, increased variable selling and marketing expenses of $1.5 million and increased travel expense of $0.6 million. Research and development expenses increased $0.1 million, or 3.3 percent, as compared to the prior-year period, primarily due to increased prototype work. Loss on early extinguishment of debt decreased $1.9 million as compared to the prior-year period, primarily due to a $1.9 million loss on extinguishment of debt in the prior-year period resulting from the redemption of $27.5 million of our outstanding Opco Notes in July 2011. Other expense increased $0.4 million, primarily due to decreased licensing income.