Remington, Marlin Parent Pulls IPO Registration; Posts Q4, Full Year Losses

 

The withdrawal asuggests that the company has not been able to build support for the IPO in the investment community after the initial excitement around the strong growth in firearms sales following the Democratic sweep in 2008. However, the trend faded within a year after threats to gun rights from Congress and the President failed to appear. The withdrawal of the registration statement also comes on the heels of a tough year for the company in 2010 where sales declined more than 12% and Freedom Group posted a net loss versus a strong profit in 2009. Freedom Group revenues slipped 1.3% to $183.3 million in the 2010 fourth quarter from $185.7 million in the prior-year period.

Revenues for Firearms fell 10.1% to $94.0 million from $104.6 million in Q4 2009, offsetting 7.5% and 50.0% growth from Ammunition and Other products, respectively. Gross margins for the quarter were flat at 30.1% of sales due to weaker margins from Ammunition and Other products. The company recorded a net loss of $11.0 million compared to a net income of $6.3 million in the prior-year period. As a result of annual testing for goodwill impairment, Freedom recognized $13.1 million of impairment charges in the fourth quarter.

 

For the full year, Freedom Group revenues fell 12.3% to $744.3 million on weakness from the Firearms segment, which plummeted 23.9% to $386.6 million on tough comparisons against fiscal 2009. Ammunition and Other products improved 3.2% and 35.3%, respectively, against the prior-year period. The company reported a net loss of $6.7 million compared to a net income of $54.0 million in Q4 2009.

 

As noted, Firearms net sales for the year were $386.6 million, a decrease of 23.9% compared to the year ended Dec. 31, 2009. Centerfire firearm sales decreased 30.9%, primarily due to reduced sales demand for modern sporting products as the 2009 surge ended and sales returned to more historical levels. Shotgun sales decreased by 5.7% versus the prior year. Rimfire firearms sales decreased by 18.2% compared to the prior-year period. Firearms gross margin was 30.7% in 2010, up 70 basis points from the prior year.

 

Management attributed the decrease in gross profit to reduced sales demand in the higher margin modern sporting products, unfavorable pricing in certain product lines of $3.6 million, increased consumer rebates and discounts of $5.2 million, as well as the impact of the accruals for the ACR and Versamax product safety recall notices, offset in part by a reduction in post retirement benefit expense of $6.9 million.

 

For the Ammunition segment, sales for the year were $332.0 million, an increase of 3.2%,, primarily due to the acquired Barnes operations. Excluding the acquired Barnes operations, Centerfire ammunition sales increased by 5.5% as compared to the prior year. The increase in sales volumes of Centerfire ammunition was attributed mainly to strong market demand for certain handgun ammunition. Sales volumes of shotshell ammunition decreased by 7.6% and rimfire ammunition sales decreased by 0.6%, as compared to the prior year. Ammunition segment gross margin was 32.3% for the year, down 610 basis points from the prior year, due primarily to unfavorable pricing of $10.1 million; higher material and other costs – net of hedging gains of $15.7 million – and purchase accounting adjustments of $0.4 million. For Other products, sales were $25.7 million in all other businesses for the year, an increase of 35.3% versus the prior year. Management said primary changes within the Other businesses consisted of an $8.2 million gain in various Accessories businesses, primarily due to the AAC Acquisition; increased sales of $2.4 million in the Apparel businesses, primarily due to the Mountain Khakis Acquisition; offset by decreased sales in powdered metal product business of $2.0 million as well as decreased sales in the company’s Targets business of $1.9 million, which ceased operations in and was sold in 2009.

 

By region, revenues from outside the U.S. were down about 14% to $76.6 million in fiscal 2010. Of note, about 12% of all sales in 2010 came from Wal-Mart. Looking ahead, management said several key product introductions will be essential to future success, including the introduction of the Remington 887 Nitro Mag shotgun along with the Marlin XL7. Likewise, Freedom is “actively driving product development in the modern sporting rifle market to tap commercial, law enforcement, international and military channels with innovative products components, parts and additional calibers.”