Sturm, Ruger & Co. Inc. reported fourth-quarter diluted earnings per share of 69 cents, beating Wall Street’s targets by 12 cents. Revenue for the quarter was $121.1 million, missing estimates by $3 million. For the corresponding period in 2017, net sales were $118.2 million and diluted earnings were 59 cents per share.
For 2018 the company reported net sales of $495.6 million and diluted earnings of $2.88 per share, compared with net sales of $522.3 million and diluted earnings of $2.91 per share in 2017.
The company also announced that its board of directors declared a dividend of 28 cents per share for the fourth quarter, for shareholders of record as of March 15, 2019, payable on March 29, 2019. This dividend varies every quarter because the company pays a percentage of earnings rather than a fixed amount per share. This dividend is approximately 40 percent of net income.
CEO Christopher J. Killoy made the following observations related to the company’s 2018 results:
- In 2018, net sales decreased 5 percent from 2017, reflecting an apparent reduction in overall industry demand as evidenced by the National Instant Criminal Background Check System (“NICS”) background checks (as adjusted by the National Shooting Sports Foundation), which decreased 6 percent in the same period.
The estimated sell-through of the company’s products from the independent distributors to retailers remained consistent with the prior year due in part to continuing demand for some of the company’s products, particularly those that were introduced in December 2017.
- 2018 earnings per share of $2.88, which were negatively impacted by the reduction in sales, benefited by the following:
- The reduced effective tax rate in 2018, resulting from the Tax Cuts and Jobs Act of 2017, increased diluted earnings per share by 27¢.
- The repurchase of 1.3 million shares of common stock in 2017 increased diluted earnings per share by 20¢.
- The comparison of earnings per share for 2018 to 2017 was impacted by 27¢ due to the change in the rates used to absorb overhead and direct labor expenses into inventory in each year:
- In 2018, improved manufacturing efficiencies and favorable leveraging decreased the carrying cost of inventory $2.0 million and resulted in a corresponding increase to cost of products sold, which reduced 2018 earnings by 8¢.
- In 2017, decreased manufacturing efficiencies increased the carrying cost of inventory $4.8 million and resulted in a corresponding decrease to cost of products sold, which increased 2017 earnings by 19¢.
- New products represented $145.6 million or 30 percent of firearms sales in 2018, compared to $137.8 million or 27 percent of firearms sales in 2017. New product sales include only major new products that were introduced in the past two years. In 2018, new products included the Pistol Caliber Carbine, the Precision Rimfire Rifle, the Mark IV pistol, the LCP II pistol, the Security-9 pistol, and the EC9s pistol.
- In 2018, the company’s finished goods inventory decreased 23,000 units and distributor inventories of the company’s products decreased 22,000. In the aggregate, total company and distributor inventories decreased by 10 percent in 2018.
- Cash generated from operations during 2018 was $119.8 million. At December 31, 2018, our cash and short-term investments totaled $152.8 million. Our current ratio is 3.3 to 1 and we have no debt.
- In 2018, capital expenditures totaled $10.5 million. We expect our 2019 capital expenditures to total approximately $25 million.
- In 2018, the company returned $19.2 million to its shareholders through the payment of dividends.
- At December 31, 2018, stockholders’ equity was $264.2 million, which equates to a book value of $15.14 per share, of which $8.75 per share was cash and short-term investments.
Photo courtesy Sturm, Ruger & Co.