Sturm, Ruger & Company, Inc. Reports Fourth Quarter and Fiscal 2014 Financial Results

Sturm, Ruger & Company, Inc. (NYSE:RGR) announced today that for 2014 the Company had net sales of $544.5 million and fully diluted earnings of $1.95 per share, compared with net sales of $688.3 million and fully diluted earnings of $5.58 per share in 2013.

For the fourth quarter 2014, net sales were $122.6 million and the Company realized a fully diluted loss of $(0.77) per share. For the corresponding period in 2013, net sales were $181.9 million and fully diluted earnings were $1.33 per share.

In the fourth quarter of 2014, the Company recorded an expense of $41.0 million related to the termination and settlement of its defined benefit pension plans. Excluding this expense, 2014 net income was $64.0 million or $3.22 per share, and fourth quarter 2014 net income was $10.5 million or 53¢ per share. The cash requirement for the termination and settlement of the defined benefit pension plans was $7.5 million.

The Company also announced today that its Board of Directors declared a dividend of 17¢ per share for the fourth quarter for shareholders of record as of March 13, 2015, payable on March 27, 2015. This dividend varies every quarter because the Company pays a percent of earnings rather than a fixed amount per share. This dividend is approximately 40% of net income. The pension plan termination expense was excluded when calculating this dividend.

Chief Executive Officer Michael O. Fifer made the following observations related to the Company’s 2014 performance:

  • The strong demand experienced in 2013 remained through the first quarter of 2014 and much of the second quarter of 2014. However, during the latter half of 2014 demand for our products declined significantly, as a result of the following:
    • the reduction in overall consumer demand,
    • high inventory levels at retail, which encouraged retailers to buy fewer firearms than they were selling, in an effort to reduce their inventories and generate cash,
    • aggressive price discounting by many of our competitors, and
    • the lack of significant new product introductions from the Company.
  • In 2014, sales to the independent distributors and the estimated sell-through of the Company’s products from the independent distributors to retailers decreased 21% and 20%, respectively, from 2013. The National Instant Criminal Background Check System (“NICS”) background checks (as adjusted by the National Shooting Sports Foundation) decreased 12% in 2014 from 2013.
  • Demand for higher-margin firearms accessories, especially magazines, which was very strong in 2013, softened in the first half of 2014 and then decreased significantly in the latter half of 2014.
  • Excluding the expense related to the termination of our defined benefit pension plans, in 2014 earnings decreased 42% and EBITDA decreased 36% from 2013. The main drivers of the reduced operating margins were:
    • reduced sales of firearms and firearms accessories,
    • the de-leveraging of fixed costs, including depreciation, indirect labor, engineering, and product development costs,
    • approximately $7 million of increased depreciation expense due to the reduction in the estimated useful lives of the Company’s capital assets, and
    • approximately $8 million of increased depreciation expense due to the $151 million of capital equipment purchases as the Company increased firearm sales from $144 million in 2007 to $679 million in 2013.
  • New product introductions in 2014 included the AR-556 modern sporting rifle and the LC9s pistol. New products represented $89.4 million or 16% of firearm sales in 2014, compared to $195.8 million or 29% of firearms sales in 2013. New product sales include only major new products that were introduced in the past two years.
  • Cash generated from operations during 2014 was $55.6 million. At December 31, 2014, our cash totaled $9 million. Our current ratio is 2.0 to 1 and we have no debt.
  • In 2014, capital expenditures totaled $45.6 million, a decrease from $54.6 million in 2013. We expect our 2015 capital expenditures to total approximately $30 million.
  • In 2014, the Company returned $55.4 million to its shareholders through:
    • the payment of $31.4 million of dividends, and
    • the repurchase of 680,813 shares of our common stock in the open market at an average price of $35.22 per share, for a total of $24.0 million.
  • At December 31, 2014, stockholders’ equity was $185.5 million, which equates to a book value of $9.90 per share.

Today, the Company filed its Annual Report on Form 10-K. The financial statements included in this Annual Report on Form 10-K are attached to this press release.

Tomorrow, February 26, 2015, Sturm, Ruger will host a webcast at 9:00 a.m. ET to discuss the 2014 operating results. Interested parties can access the webcast at www.ruger.com/corporateor by dialing 877-415-3180, participant code 87093849.

The Annual Report on Form 10-K is available on the SEC website at www.sec.gov and the Ruger website at www.ruger.com/corporate. Investors are urged to read the complete Annual Report on Form 10-K to ensure that they have adequate information to make informed investment judgments.

About Sturm, Ruger

Sturm, Ruger & Co., Inc. is one of the nation’s leading manufacturers of rugged, reliable firearms for the commercial sporting market. The only full-line manufacturer of American-made firearms, Ruger offers consumers over 400 variations of more than 30 product lines. For more than 60 years, Ruger has been a model of corporate and community responsibility. Our motto, “Arms Makers for Responsible Citizens,” echoes the importance of these principles as we work hard to deliver quality and innovative firearms.

The Company may, from time to time, make forward-looking statements and projections concerning future expectations. Such statements are based on current expectations and are subject to certain qualifying risks and uncertainties, such as market demand, sales levels of firearms, anticipated castings sales and earnings, the need for external financing for operations or capital expenditures, the results of pending litigation against the Company, the impact of future firearms control and environmental legislation, and accounting estimates, any one or more of which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made.The Company undertakes no obligation to publish revised forward-looking statements to reflect events or circumstances after the date such forward-looking statements are made or to reflect the occurrence of subsequent unanticipated events.

STURM, RUGER & COMPANY, INC.

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

December 31,2014 2013
Assets
Current Assets
Cash and cash equivalents $ 8,901 $ 55,064
Trade receivables, net 49,735 67,384

Gross inventories

89,017

64,199

Less LIFO reserve

(40,578

)

(38,516

)

Less excess and obsolescence reserve

(3,750

)

(2,422

)

Net inventories 44,689 23,261
Deferred income taxes 7,246 7,637
Prepaid expenses and other current assets 7,603 4,280
Total Current Assets 118,174 157,626
Property, Plant, and Equipment 288,236 250,127
Less allowances for depreciation (177,575 ) (149,099 )
Net property, plant and equipment 110,661 101,028
Other assets 25,547 18,464
Total Assets $ 254,382 $ 277,118

STURM, RUGER & COMPANY, INC.

Consolidated Balance Sheets (Continued)

(Dollars in thousands, except per share data)

December 31,2014 2013
Liabilities and Stockholders’ Equity
Current Liabilities
Trade accounts payable and accrued expenses $ 36,150 $ 46,991
Product liability 641 971
Employee compensation and benefits 18,302 34,626
Workers’ compensation 5,133 5,339
Income taxes payable 156 239
Total Current Liabilities 60,382 88,166
Product liability 204 265
Deferred income taxes 8,334 9,601
Contingent liabilities - -
Stockholders’ Equity

Common stock, non-voting, par value $1:

Authorized shares – 50,000; none issued

Common stock, par value $1:

Authorized shares – 40,000,000

2014 – 23,717,321 issued,

18,737,074 outstanding

2013 – 23,647,350 issued,

19,347,916 outstanding

23,717

23,647

Additional paid-in capital 25,472 20,614
Retained earnings 198,159 192,088

Less: Treasury stock – at cost

2014 – 5,054,747 shares

2013 – 4,299,434 shares

(61,886

)

(37,884

)

Accumulated other comprehensive loss - (19,379 )
Total Stockholders’ Equity 185,462 179,086
Total Liabilities and Stockholders’ Equity $ 254,382 $ 277,118

STURM, RUGER & COMPANY, INC.

Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share data)

Year ended December 31,2014 2013 2012
Net firearms sales $ 542,267 $ 678,552 $ 484,933
Net castings sales 2,207 9,724 6,891
Total net sales 544,474 688,276 491,824
Cost of products sold 375,300 429,671 312,871
Gross profit 169,174 258,605 178,953
Operating Expenses:
Selling 44,550 48,706 38,363
General and administrative 28,899 35,394 29,231
Defined benefit pension plans settlement charge 40,999 - -
Other operating (expenses), net (1,612 ) (401 ) 293
Total operating expenses 112,836 83,699 67,887
Operating income 56,338 174,906 111,066
Other income:
Royalty income 468 658 824
Interest income 2 4 34
Interest expense (152 ) (135 ) (95 )
Other income (expense), net 584 (201 ) 280
Total other income, net 902 326 1,043
Income before income taxes 57,240 175,232 112,109
Income taxes 18,612 63,960 41,480
Net income 38,628 111,272 70,629
Other comprehensive income (loss), net of tax:
Defined benefit pension plans - 10,240 (2,077 )
Comprehensive income $ 38,628 $ 121,512 $ 68,552
Basic Earnings Per Share $ 1.99 $ 5.76 $ 3.69
Fully Diluted Earnings Per Share $ 1.95 $ 5.58 $ 3.60
Cash Dividends Per Share $ 1.62 $ 2.12 $ 5.80

STURM, RUGER & COMPANY, INC.

Consolidated Statements of Cash Flows

(In thousands)

Year ended December 31,2014 2013 2012
Operating Activities
Net income $ 38,628 $ 111,272 $ 70,629

Adjustments to reconcile net income to cash provided by operating activities:

Pension plan settlement charge 32,218 - -
Depreciation and amortization 36,706 20,362 14,888
Stock-based compensation 5,647 5,288 4,718
Excess and obsolescence inventory reserve 1,347 693 761
Loss (gain) on sale of assets (1 ) 1 (944 )
Deferred income taxes (12,015 ) 5,736 (1,480 )
Impairment of assets 178 911 1,134
Changes in operating assets and liabilities:
Trade receivables 17,649 (24,366 ) (793 )
Inventories (22,775 ) (7,945 ) (6,553 )
Trade accounts payable and accrued expenses (11,047 ) 9,231 9,908
Employee compensation and benefits (17,435 ) 17,897 (4,345 )
Product liability (391 ) 179 (689 )
Prepaid expenses, other assets and other liabilities (13,075 ) (19,340 ) (321 )
Income taxes payable (83 ) (250 ) 272
Cash provided by operating activities 55,551 119,669 87,185
Investing Activities
Property, plant, and equipment additions (45,571 ) (54,616 ) (27,282 )
Purchases of short-term investments - - (59,966 )
Proceeds from sales or maturities of short-term investments - - 59,966
Net proceeds from sale of assets 24 233 1,003
Cash used for investing activities (45,547 ) (54,383 ) (26,279 )
Financing Activities
Dividends paid (31,446 ) (41,079 ) (111,523 )
Tax benefit from exercise of stock options 1,621 2,302 3,474
Repurchase of common stock (24,002 ) - -
Payment of employee withholding tax related to share-based compensation

(2,363

)

(2,423

)

(3,083

)

Proceeds from exercise of stock options 23 - 148
Cash used for financing activities (56,167 ) (41,200 ) (110,984 )
Increase (decrease) in cash and cash equivalents (46,163 ) 24,086 (50,078 )
Cash and cash equivalents at beginning of year 55,064 30,978 81,056
Cash and cash equivalents at end of year $ 8,901 $ 55,064 $ 30,978

Non-GAAP Financial Measure

In an effort to provide investors with additional information regarding its results, the Company refers to various United States generally accepted accounting principles (“GAAP”) financial measures and one non-GAAP financial measure, EBITDA, which management believes provides useful information to investors. This non-GAAP measure may not be comparable to similarly titled measures being disclosed by other companies. In addition, the Company believes that the non-GAAP financial measure should be considered in addition to, and not in lieu of, GAAP financial measures. The Company believes that EBITDA is useful to understanding its operating results and the ongoing performance of its underlying business, as EBITDA provides information on the Company’s ability to meet its capital expenditure and working capital requirements, and is also an indicator of profitability. The Company believes that this reporting provides better transparency and comparability to its operating results. The Company uses both GAAP and non-GAAP financial measures to evaluate the Company’s financial performance.

Non-GAAP Reconciliation – EBITDA

EBITDA

(Unaudited, dollars in thousands)

Year ended December 31,2014 2013
Net income $ 38,628 $ 111,272
Income tax expense 18,612 63,960
Depreciation and amortization expense 36,706 20,362
Interest expense 152 135
Interest income (2 ) (4 )
Pension plan termination expense, net of cash payment 32,218 -
EBITDA $ 126,314 $ 195,725

EBITDA is defined as earnings before interest, taxes, and depreciation and amortization. The Company calculates this by adding the amount of interest expense, income tax expense and depreciation and amortization expenses that have been deducted from net income back into net income, and subtracting the amount of interest income that was included in net income from net income to arrive at EBITDA. The Company’s EBITDA calculation also excludes any one-time non-cash, non-operating expense, such as the pension plan termination expense.

Contacts:

Sturm, Ruger & Company, Inc.
One Lacey Place
Southport, CT 06890
www.ruger.com
203-259-7843

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