Sturm, Ruger & Company, Inc. Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 22, 2024

There are 7 speakers on the call.

Operator

Thank you

Speaker 1

for standing by, and welcome to the Sturm Broeker 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Chris Killoy, President and CEO.

Speaker 1

Please go ahead, sir.

Speaker 2

Thank you. Good morning, and welcome to the Sturm, Ruger and Company year end 2023 conference call. Would like to ask Kevin Reed, our General Counsel, to read the caution on forward looking statements. Tom Nuneen, our Chief Financial Officer, will then give an overview of the Q4 and 2023 financial results, and then I will discuss our operations and the state of the market. After that, we'll get to your questions.

Speaker 2

Kevin?

Speaker 3

Thanks, Chris. Want to remind everyone that statements made in the course of this meeting that state the company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained from time to time in the company's SEC filings, including but not limited to the company's reports on Form 10 ks for the year ended December 31, 2023, and of course, the Forms 10 Q for the 1st, 2nd and 3rd quarters of 2023. Copies of these documents may be obtained by contacting the company or the SEC or on the company website atruber.com/corporate or of course the SEC website atsec.gov.

Speaker 3

We do reference non GAAP EBITDA. Please note that the reconciliation of GAAP net income to non GAAP EBITDA can be found in our Form 10 ks for the year ended December 31, 2023 and our Forms 10 Q for the 1st 3 quarters of 2023, which also are posted on our website. Furthermore, the company disclaims all responsibility to update forward looking statements. Chris?

Speaker 2

Thank you, Kevin. Now Tom will discuss the Company's 2023 results.

Operator

Thanks, Chris. For 2023, net sales were $544,000,000 and diluted earnings were $2.71 per share. For 2022, net sales were $596,000,000 and diluted earnings were $4.96 per share. For the Q4 of 2023, net sales were $131,000,000 and diluted earnings were $0.58 per share. For the corresponding period in 2022, net sales were $149,000,000 and diluted earnings were $1.06 per share.

Operator

Our profitability declined in 2023 from 2022 as our gross margin decreased from 30% to 25%. The lower margin was driven by unfavorable deleveraging of fixed costs resulting from decreased production and sales, inflationary cost increases in materials, commodities, services, wages, energy, fuel and transportation, our product mix shift toward products with relatively lower margins that remain in stronger demand and increased promotional costs. Our continued focus on financial discipline and the cultivation of long term shareholder value is evident in our strong debt free balance sheet. At December 31, 2023, our cash and short term investments totaled $118,000,000 Our short term investments are invested in United States treasury bills and in a money market fund that invests exclusively in United States treasury instruments, which mature within 1 year. At December 31, 2023, our current ratio was 4.3:one and we had no debt.

Operator

Stockholders' equity was $332,000,000 which equates to a book value of $19 per share, of which $6.74 was cash and short term investments. In 2023, we generated 34 dollars of cash from operations. We reinvested $16,000,000 of that back into the company in the form of capital expenditures related to new product introductions and upgrades to our manufacturing equipment and facilities. We expect our 2024 capital expenditures to total approximately $15,000,000 In 2023, we returned $123,000,000 to our shareholders through the payment of $111,000,000 of dividends, which included $88,000,000 in the form of a $5 per share special dividend paid in January 2023 and the repurchase of more than 264,000 shares of our common stock in the open market at an average price of $44.71 per share for a total of $12,000,000 At December 31, 2023, approximately $75,000,000 still remain authorized for share repurchases. Our Board of Directors declared a $0.23 per share quarterly dividend for shareholders of record as of March 15, 2024 payable on March 28, 2024.

Operator

As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies quarter to quarter. That's the financial update for 2023. Chris?

Speaker 2

Thanks, Tom. Consumer demand remains soft throughout most of 2023, likely dampened by inflationary pressure and rising interest rates, leading to a 9% reduction in sales from the prior year. The estimated unit sell through of our products from the independent distributors to retailers in 2023 decreased 7% compared to 2023 excuse me, compared to 2022. In 2023, Knicks background checks, as adjusted by the National Shooting Sports Foundation decreased 4%. Nevertheless, we remain disciplined and continue to focus on the long term, reducing production levels where appropriate and offering only modest promotions on select product families, resisting the temptation to enhance short term results at the expense of our long term strategy.

Speaker 2

As a result, inventory of our products at the independent distributors decreased 39,000 units in 2023 despite the decreased demand. We are encouraged by our increased quarterly sales and profitability in the 4th quarter and we enter 2024 with a strong debt free balance sheet, reduced distributor inventories and a full pipeline of new products recently launched into the market and others still under development. 2024 is an exciting year for Ruger as we are celebrating our 75th anniversary. To honor our proud heritage, we are offering commemorative firearms that will only be available this year, all of which are engraved with our 70 5th anniversary logo. A Mark IV target pistol featuring a fully adjustable rear sight and undercut Patrick front sight and a heavy tapered barrel.

Speaker 2

A pair of 10.22 Sporter Rimfire Carbines, each featuring a stainless steel barrel, silver finished receiver, polished bolt and a max sanded butt pad and an LCP MAX double stack 10 round pistol chambered in 3.80 auto featuring a stainless steel slide and a silver anodized aluminum trigger. Also several limited production editions of other products will be released throughout the year. The first of these is Diamond Anniversary Limited Edition 1911 pistol, which features an attractive, finely detailed laser engraved slide. We look forward to announcing more of these one of a kind firearms throughout 2024. In addition to these 75th anniversary models, we recently introduced several new products that MedMet with strong demand and excitement at the wholesale and retail levels and most importantly with our customers at the gun counter.

Speaker 2

The Ruger American Rifle Generation 2, our first update to the American rifle, which has been tremendously popular since its introduction in 2012. The Gen 2 models offer an array of new standard features, which include a 3 position tank safety and eye catching splatter painted ergonomic stock with length of pull and comb height adjustability and a Cerakote finish spiral fluted barrel. The 60th anniversary tentwenty 2 carbine, the 6th edition of the Ruger Collector Series features a stainless steel barrel and silver finished receiver paired with a gray Magpul Hunter X22 stock, a black and bolt laser engraved with the unique 60th anniversary markings and a red bolt handle and trigger. Also have the Mini-fourteen with side folding stock reminiscent of the original side folding Mini-fourteen rifles made popular in 1980s. And the LC carbine now chambered at 45 Auto featuring a threaded barrel, adjustable folding stock, Ruger Rapid Deploy folding sites and ambidextrous controls.

Speaker 2

Recently, there were some changes to the requirements for pistols to be sold in California. Consequently, 5 Ruger pistols were added to the California roster of certified handguns, including a Mark IV, a Mark IV-two thousand two hundred and forty five, an SR22, an LCP and a fully featured Ruger Max 9 pistol. These models are the first that Ruger has been able to introduce to consumers in California in over 10 years, and we look forward to offering more quality Ruger pistols to the California roster in 2024. New product sales, which include only major new products that were introduced in the past 2 years, represented $122,000,000 or 23% of firearm sales in 2023. That's an increase from $78,000,000 or 14% of sales in 2022.

Speaker 2

This includes the MAX 9 pistol, the Security 3 80 pistol, the Super Wrangler revolver, the LCP MAX pistol, Marlin lever action rifles, the LC Carbine, small frame autoloading rifle and most recently the American Centerfire rifle Gen 2. We remain hard at work and look forward to introducing additional innovative Ruger and Marlin firearms in 2024. All of our new products and many of our classic firearms were on display at last month's SHOT Show in Las Vegas. It was an exciting show and great way to catch up with a wide variety of retailers and other industry attendees. We co hosted a 75th anniversary event along with the folks from Hornady Ammunition who are also celebrating their 75th anniversary this year.

Speaker 2

It was a memorable evening that honored the history and enduring achievements of 2 American leaders of our industry. We look forward to adding the next chapter of our proud legacy in 2024 and our diverse and growing catalog products, robust debt free balance sheet, commitment to long term strategy of generating and returning shareholder value have us well positioned to do so. Operator, may we have the first question?

Speaker 1

And our first question comes from the line of Mark Smith from Lake Street. Your question please.

Speaker 4

Hi guys. First question for me is just looking at the quarter here, mix impact during the quarter and maybe any impact that that had on ASP?

Speaker 2

Hi, Mark. Chris here. Yes, I think when you look at our average selling price in the quarter, kind of 2 things stand up. The backlog actually went up in Q4, largely based on some of the higher price models that were introduced, I. E.

Speaker 2

Additional Marlin centerfire lever actions and additional orders for the SFAR rifle. However, the average sales price of orders received when you look at that went down slightly from say Q1 level and Q2 up from Q3 and that's really because we're selling a lot of products like the repositioned LCP MAX, the original LCP that we had repositioned that price. And so all that combined resulted in good unit sales, but the lower average sales price of those guns going out.

Speaker 4

Okay. And I thought the orders look strong here during the quarter. Is there any risk or should we be looking at? Do you feel like you pulled maybe some forward from Q1, which is typically a really strong order quarter?

Speaker 2

Not really. We have a lot of new products launched in Q4, particularly the American Rifle Gen 2 and some additional Marlin SKUs that really impacted that order rate. So the order rate was strong, but it was all things that we expect to fulfill going forward as we go out into 2024. So I definitely don't think it was anything pull forward. It was really had to do with new product launches that went out in Q4.

Speaker 4

Okay. And then inventory, your own as well as distributor inventory went down, one of the better quarters here in the last couple of years. What's kind of your comfort level? How do you feel about where the kind of channel inventory is today?

Speaker 2

I think we're feeling pretty good about that. Like you said, distributor inventory over the course of the year was down about 30,000. We were up about the same amount, but overall pretty balanced. So we like to target our distributors around 6 turns. And so right now, they're right about in that strike zone, and we feel pretty good about that.

Speaker 2

We don't see any sore spots in their inventory. Some of the items that we repositioned through the course of 2023 were intended to help distributors move some of their problematic inventory, where they're a little higher in certain categories than they'd like to be, and we think we're effective in doing that.

Speaker 4

Okay. And then just looking at the expense side of things, operating expenses were a little higher than we'd expected. Anything going on there? Do you feel like there's places maybe to cut going forward? Or is this kind of a buildup coming into what could be a good year in 'twenty four?

Speaker 4

Any insight into kind of where your expenses were and maybe anything in the outlook for 2024 would be great?

Speaker 2

Good question. I think we saw a slight uptick from 2022. We're about where we were in 2021, if I recall, on the operating expenses. A lot of that has to do with 2022. We had still, for example, had not gone to the SHOT Show.

Speaker 2

We had a couple of expenses that were not in there versus 2023. We have a full complement of trade shows. But there are certainly scenarios we need to look at in terms of making sure we have our expenses under control, cut some of those expenses where we can and try to boost our profitability. That's an active effort that's underway as we speak.

Speaker 4

Okay. And the last one, Chris, just kind of big picture as we look at historically going into an election year, we would look for pretty solid demand. As you look into your crystal ball, any thoughts on kind of where the consumers at and demand for firearms this year?

Speaker 2

Well, that's a good question. And one we grapple with when we look to plan the year out. At least right now, we're seeing things fairly stable and we're not seeing any outsized demand in any particular product categories other than our new products. We're seeing things like at the recent shows, at the Great American Outdoor Show in Harrisburg, Pennsylvania, Western Hunting and Conservation Expo in Salt Lake City, tremendous demand for some of our new products. So that's very positive.

Speaker 2

But given the election year coming up, I think if there's any impact there, it will probably be in the back half of the year. We're not seeing anything right now. And I just don't know beyond that what we may see this year. Historically, some things whether it's saber rattling about additional regulatory impact or fire or gun control may drive sales, but I just don't know at this point. We're not seeing anything yet.

Operator

Okay. That's fair. Thank you. Thank you.

Speaker 1

And our next question comes from the line of Ryan Hamilton from Morgan Dempsey. Your question please.

Speaker 5

Hey, good morning everyone. Thank you for taking my calls and my questions. Could you walk me through the cadence for 2023 regarding inflation maybe and what you're seeing in 2024? Like I said, is it picking up? Is it maybe where you're at?

Speaker 5

Or is it picking up, slowing down maybe where you're at?

Speaker 2

I think we're seeing persistent price increases. We didn't see things decrease in price in our commodities and things of that nature. But we're not seeing the same level of increases as we did in beginning of the year. So I'd say it's fair to say it certainly tapered off and probably stable where we are right now. Now things that certainly are more sticky than others in certain categories, certain commodities, wages and things of that nature.

Speaker 5

And where are you being pinched? I mean, you just brought up wages. As far as commodities go, where are you still being pinched the most?

Speaker 2

Well, I think some of its availability, some of its in our when we look at steel, aluminum, even wood, for example, the quality of ability to get quality walnut for some of our rifles is one of those commodities that not many other manufacturers are concerned about. But that's one that trying to get quality walnut at a reasonable price is something that negatively impacts profitability or impacts the price of the firearm going out the door.

Speaker 5

So you're not having a hard time getting it, you're just having to pay more for it?

Speaker 2

There are a few things we're having a hard time getting. Like I said, the wood in particular, getting good quality, highly configured walnut when you're looking for a number 1 rifle or an M77 Woodstock rifle, those are things that are harder and harder to find. And so our buyers are always constantly looking for new sources and trying to make sure we're getting the best quality product we can because we have our own woodshop. So we're turning those wood blanks up in Newport, New Hampshire and then putting it on our products at our factories both in New Hampshire and North Carolina.

Speaker 5

Got it. When looking at Marlin, it appears that you aren't fully meeting the demand that's out there. Could you kind of comment a little bit on that and what you what levers you guys can pull to maybe either get more rifles to market?

Speaker 2

Well, as you may know, this year we turned on the 1894 line. So the 1894 line really doubles our capacity in total Marlin production. We have one line, we call the round bolt line that makes the 1895s and the 336s. The other line makes the 1894s. 1894s are the 44 magnums and 357 magnum rifles, which receiving tremendous demand just like the originals that we launched in the 40 fiveseventy.

Speaker 2

That's the good news. And it's been a continuing challenge to get those ramped up to try to meet demand. The team down in Mayodan is doing an awesome job. We still have room to grow, and we're chasing that demand hard. We're trying to be conscious of the fact that we have to maintain quality first as we chase the demand.

Speaker 2

I mean, these are quality rifles. Our customers expect them to be quality made. And I think we're delivering on that commitment, but we've got to be careful to make sure we don't try to go too fast and deliver rifles that are not up to snuff to where our Ruger and Marlin customers are expecting.

Speaker 5

Right. No, that is great news. Thanks for the color on that. And then as I usually ask on these calls, could you touch a little bit on the accessories business and what you're seeing there?

Speaker 2

Well, accessories business is a profitable segment for us for sure, particularly out of our Schott Ruger segment, particularly when it comes to things that we make, like our magazines, our BX-one magazines, our BX-twenty five magazines, etcetera. And we ran a promotion in

Speaker 5

at the

Speaker 2

beginning of Q4 that included, shop Ruger. It provided if a consumer bought an American Rifle Generation 1, they were able to redeem it for $100 Shop Ruger gift card. And that helped drive both sales of the generation Gen 1 American rifles before the launch of the Gen 2s and it also helped increase sales at on our shop brewer segment and drive traffic there and frankly, it got us a lot of new customers in Shoppe River. So we're very pleased with the results of that promo.

Speaker 5

Excellent. Thanks for the time guys and congrats on the 75 years.

Operator

Thank you.

Speaker 1

Thank you. One moment for our next question. And our next question comes from the line of Rommel Dionisio from Aegis Capital. Your question please.

Speaker 6

Good morning. Thank you. I know in your prepared comments you talked about product mix shift in 2023 being somewhat adverse. I wonder if you could just maybe give us a feel for the strong orders you've got in Q4 and the new products that you've launched, how we should think about product mix going into 2024? And as a follow-up to that, I know you guys have done a great job over the years, really engineering cost out of the product line.

Speaker 6

And I wonder if you could just talk about some of the initiatives there to better position your gross margins. Thanks.

Speaker 2

Thanks, Rommel. I wouldn't call it an adverse product mix as much as we had some lines that like you take our original LCP, the 3,701 was model number. When we started to look at where the market was, where the competition was, we looked at that and said we need to reposition the price. We have a great gun, market leading position with that gun, but we know we can get our volume back up. We'll reposition that model.

Speaker 2

So that's part of the actions we took on that original LCP. We also did it with the MAX 9 and the Security 9 pistols. So between that and then doing some things like ramping up some of the lines that we neglected during COVID when we were pushing hard on certain other segments, things like the single action revolvers. Our team up in Newport has done a great job getting that back up and running to kind of our historical levels. And so those lines, while they're in a lot of demand, they're also hard to make and they're not as high in margin as we like.

Speaker 2

But I would tell you that the folks are working every week. We've got new Kaizens going on in all the factories to take costs out, reduce our cost reduce manufacturing costs, make the line safer for the folks working it. And so I'm optimistic that those Kaizans will continue to yield results for us.

Speaker 6

Great. That's very helpful. Thanks so much.

Operator

Thank you.

Speaker 1

This does conclude the question and answer session of today's program. I'd like to hand the program back to Chris Killoy, President and CEO, for any further remarks.

Speaker 2

Thank you. In closing, I'd like to start by thanking all of you for attending our call this morning and for our shareholders for their continued investment in our company.

Speaker 3

And I would like to thank

Speaker 2

our loyal customers and the 1800 hard working members of the Ruger team who design, manufacture and sell rugged, reliable firearms every day in our American factories. I hope you will be able to join us at our virtual 2024 Annual Meeting on Thursday, May 30. Further details will become available in April. Thank you.

Speaker 1

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Remove Ads
Powered by Quartr
Earnings Conference Call
Sturm, Ruger & Company, Inc. Q4 2023
00:00 / 00:00
Remove Ads