Shares of Vista Outdoor Inc. rose $1.47, or 11.8 percent, at market close Thursday after the company’s earnings report revealed successful cost-cutting measures and highlighted both the recent divestiture of its eyewear brands and continued pursuit of shedding its firearms brands.
The company’s shares had been up around 16 percent in midday trading before settling in the low double digits, proof that Wall Street reacted positively to Vista exceeding revenue and earnings expectations in the second quarter ended September 30.
“We’ve driven multiple other cost savings and efficiency initiatives across the enterprise from procurement to supply chain to sourcing to manufacturing efficiency to payroll consolidations and more and importantly, we’ve introduced the winning culture to our entire organization,” CEO Chris Metz said on Thursday morning’s earnings conference call with analysts. “… the executive summary is that the transformation is taking shape. We’re seeing results and are more confident than ever that we now have the tools and plan in place to complete this turnaround to get this company back to profitable growth and to see more successful Vista Outdoor for the future.”
Sales were $547 million, down 7 percent from the prior-year quarter but ahead of analysts’ estimates by $5.4 million. Fully diluted earnings per share was (57) cents, compared to $(2.01) in the prior-year quarter. Adjusted EPS was 5 cents, compared to 34 cents in the prior-year quarter but beating estimates by 3 cents.
Read more: Vista Outdoor Lifts EPS Guidance On Cost-Reduction Initiatives
The company had some notable accomplishments during the quarter, starting with completing the divestiture of the legal entities operating the company’s Bollé, Cébé and Serengeti eyewear brands.
“Completing the sale of our eyewear brands is a positive step in our strategic transformation plan,” Metz said in early September at the time of the sale. “We believe this is a mutually beneficial arrangement for both parties, and we are excited that the buyer will help these iconic brands thrive.”
Read more: Vista Outdoor Finalizes Sale Of Bollé, Cébé And Serengeti Brands
Gross proceeds from the divestiture were $158 million, and Vista Outdoor said it would use the proceeds to pay down debt, something Metz confirmed on Thursday.
“I’m pleased to say that in quarter two, we paid down $143 million in debt,” he said. “Year to date, we’ve paid down $176 million in debt and since October of last year, we’ve paid down a total of $307 million of debt. We’ve also made progress on a previously discussed refinancing actions.”
Much of Metz’s opening comments on the conference call centered on Vista Outdoor’s efforts to “right-size” its portfolio and focus on four core categories—ammunition, hunting and shooting accessories, hydration bottles and packs and outdoor cooking products.
Metz said selling off the company’s eyewear brand was the first step in that process. Vista is “transforming our business and we’re eager to build on that momentum. Our team is now laser focused on the divestiture process for Savage arms. We’ve chosen a financial adviser for the transaction and are beginning to engage with potential buyers for the Savage brand.”
But portfolio optimization wasn’t Vista Outdoor’s only Q2 focus on cleaning up the bottom line. The company reduced “costs through both improved sourcing and production efficiency initiatives at our owned manufacturing plants,” Metz said.
“We’ve made great progress on these initiatives and expect the investments we’ve made in the first half of the fiscal year to drive margin expansion in the second half of the fiscal year and beyond,” he added. “We’ve also undertaken several initiatives that have reduced corporate staff and consolidated corporate functions under fewer senior leaders. This allows us to go forward with a leaner corporate team and place more emphasis and investment at the brand level.”
The company is also reducing its corporate footprint by subleasing its Farmington, UT, facility and will house corporate and shared services teams at Vista’s other two corporate facilities in Anoka, MN, and Arlington, VA.
Metz then went on to outline some of the challenges facing Vista as the company transforms and looks to regain market share with brands like CamelBak, which recently named a new president, Greg Williamson.
One pressure comes from competition, such as a “certain other ammunition producer who has reduced pricing to levels that we do not believe to be sustainable,” Metz said. Another is the increased tariffs on a number of Vista brands.
Despite plenty of work facing Vista and its ongoing transformation efforts, the company’s CEO remains bullish that measures taken and still to come will position the company soundly for 2019 and beyond.
“The strength of our brands and our industry-leading share positions are what first attracted me to Vista Outdoor,” Metz said. “And downturns like the one we are currently facing, it is typically the industry’s leaders with strong brands and management teams that end up on top. I’m confident with the strength of our brands and the leaders we are attracting, we will emerge as winners.”
Photo courtesy Vista Outdoor
[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]
