Q3 2019 Earnings Call
At this time all participant lines are in listen only mode.
After the speakers presentation, there will be a question and answer session.
To ask the question. During this session you will need to press star one on your telephone.
Please be advised to today's conference is being recorded.
If you require any further assistance. Please press star then zero.
I would now like to have the conference over to your speaker today, Mr., Christopher Coy, President and Chief Executive Officer. Please go ahead Sir.
Good morning, and welcome to the Sturm Ruger and company third quarter 2019 conference call.
I would like to ask Patricia Shepherd, our associate General counsel to read the caution on forward looking statement, then Tom Dineen, Our Chief Financial Officer will give an overview of the third quarter financial results and then I will discuss the state of the market and update you on our operation.
And then we'll get to your question Pat Let's get started thanks, Chris.
We just want to remind everyone that statements made in the course of this meeting that seat the company's or management's intentions hopes beliefs expectations or predictions of the future are forward looking statements, but it's 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 FCC filings.
Moving but not limited to the company's reports on Form 10-K for the year ended December 31st 2018.
Form 10-Q for the fiscal quarter ended September 20, 829 pm.
Because of these documents may be obtained by contacting the company or the FCC or on the company's website at www Dot Ruger dotcom slash corporate.
Or the FCC website at Www Dot FCC that though.
We reference non-GAAP EBITDA. Please note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found in our Form 10-K for the year ended December 31st 2018.
And our Form 10-Q for the quarter ended September 28, 2019, which are also posted to our website. Furthermore, the company disclaims all responsibility to update forward looking statement.
Thank you Pat that from a financial summary of the third quarter Dom.
Thanks, Chris.
For the third quarter 2019, net sales were $95 million and diluted earnings were 27 cents per share.
For the comparable prior year period, net sales were $114.9 million.
And diluted earnings were 52 cents per share.
For the first nine months of 2019.
Net sales were $305.4 million and diluted earnings were one dollar and 37 cents per share.
For the corresponding period in 2018.
Net sales were $374.5 million.
And diluted earnings were $2, a 19 cents per share.
The reduced profitability in the third quarter and first nine months of 2019.
Was due primarily to the decrease in our sales and production.
Which resulted in unfavorable de leveraging of fixed costs such as depreciation.
Maintenance.
Indirect labor and engineering.
The balance sheet.
At September 28, 2019, our cash and short term investments totaled $137.3 million.
Our current ratio was 4.7 to one and we have no debt.
At September 22019, stockholders' equity totaled $277.6 million.
This equates to a book value at $15.91 per share.
Cash provided by operations during the first nine months of 2019 was $8.9 million.
Cash returned to shareholders.
In the first nine months of 2019, the company returned $14 million to its shareholders through the payment of $12 million of dividends and the repurchase of 44500 shares of common stock.
Average price of $44, an 83 cents per share for a total of $2 million.
Our board of directors declared an 11 cents per share quarterly dividends for shareholders of record as of November 15th 2019 payable on November 27th 2019.
As a reminder, our quarterly dividend is approximately 40% of net income and therefore, it varies quarter to quarter.
That's the financial update for third quarter.
Thanks, Tom.
Demand demand has remained soft throughout this year once again, we elected to forego opportunities to generate better short term results were overly aggressive discounting and promotions and the extension of payment terms, which would hinder our long term performance value and brand. Instead, we took the fiscally procure prudent measure of reduced.
Production for the third consecutive quarter to moderate inventory levels in our warehouses and in the distribution channel.
The decrease in sales may be attributable to the following.
More aggressive promotions discounts rebates and the extension of payment terms offered by our competitors.
Relatively fewer new product shipments compared to 2018, which benefited from the launch of four major products in December of 2017.
The loss of a formally significant distributor that ultimately filed for bankruptcy protection in June 2019, and the market disruption caused by the liquidation of its inventory of Ruger products.
Decreased retailer short term demand as he anticipation of further discounting continues to encourage cautious buying.
From the retailers.
We use adjusted Nics background checks as a proxy for consumer firearms demand. However, adjusted Nics is not a perfect metric as it can be impacted by changes in state laws and regulations and many directives and interpretations issued by government agencies.
For example, the use of state issued permits to carry firearms in lieu of nics background checks for certain transactions was significantly curtailed in 2019.
This resulted in increases in third quarter, adjusted Nics background checks for Alabama, and Minnesota of 124% and 60% respectively.
Excluding Alabama in Minnesota, adjusted Nics increased only 7% in the third quarter compared to 10% as reported and decreased 2% for the nine months ended September 28, 2019, compared to 1% as record reported.
Also adjusted Nics include use gun sales, which can unduly impacted results for particular period or comparison.
Despite its limitations and anomalies, we believe adjusted Nics provides insight into the underlying demand for firearms at the consumer level.
New products.
New product sales represented $71 million or 23% of firearm sales in the first nine months of 2019.
New product sales include only major new products that were introduced in the past two years, which include the wrangler revolver. The pistol caliber carbyn D.C. nine as pistol the security nine pistol and the precision rimfire rifle.
As a reminder, derivatives and product line extensions of mature product families are not included in our new product sales calculation.
Product line extensions and distributor exclusives can fly under the radar as they don't get as much attention and fanfare as our breakthrough new product platforms.
Nevertheless, they provide great value an opportunity to both our immediate customers the independent wholesale distributors the retailers and the ultimate consumer.
Notably in the third quarter, we launched 43, new distributor exclusives and product line extensions, bringing the total for the first nine lots of 2019 to 120.
Production in inventory.
We base, our production and manage our inventory levels, primarily through semi monthly reviews of sales the estimated sales of our products from the independent distributors to retailers and our inventory and that of our independent distributors.
Our total unit production for the third quarter of 2019 was 4% below the second quarter of 2019 and due to production mix our sales value of production was down 16%.
As a result of our disciplined approach to production the combined inventories in our warehouses and at our distributors decreased 8600 units during the third quarter of 2019, despite the reduced demand.
This allows further flexibility in our production and inventory management as we look forward to 2020.
In response to the reduced production in the third quarter, we were proactive in managing our workforce as we kept the hiring freeze and put in place and allowed attrition to reduce our workforce.
Reduced overtime and took two additional shutdown days in the third quarter on top of our normal scheduled shutdown week in July .
We believe that this disciplined approach, which adversely impacted our quarterly financial results will pay dividends in the long run.
Capital expenditures.
Capital expenditures in the first nine months of the year were $9.2 million.
During the past few years, we have successfully moves significant amounts of equipment within and between our three manufacturing facilities, which is moderated our need for capital spending despite an aggressive schedule of new product development.
Our engineering teams are actively engaged everyday working on exciting new products and I remain optimistic about our new product development activity and look forward to providing updates.
Accordingly, we expect our total capital expenditures to approximate $15 million in 2019.
Cash and short term investments.
Our cash and short term investments balance was $137 million at the end of September and is currently over $150 million, which is more than we need to support our normal operations.
Our capital allocation philosophy has not changed our primary responsibility is his stewardship of our shareholders assets in the creation of shareholder value.
We're looking for opportunities to generate shop strong returns with our capital and we are prepared to capitalize it the right one arises at the right print price.
Our strategy is predicated on remaining financially strong fiscally disciplined and focused on delivering long term value to our shareholders.
This strategy has resulted in a return of over $230 million to our shareholders in the past five years alone during which time, we achieved an average annual return on net operating assets of 46%.
Accordingly, if we get to a point, where we are not able to implore capital.
We will return cash to our shareholders.
And I ask GW, the National Association of Sporting goods wholesalers held its 46th annual meeting in Orlando in October .
The SGW honored Ruger as a fire as manufacturer of the year for the 13th consecutive year.
We also received the any SGW caliber award for the best New rifle, the Ruger precision rimfire Magnum, we're honored to be recognized by our customers and we accepted these awards on behalf of the 1600 hardworking Ruger employees that make our company Ron.
Operator, we may we have the first question.
Ladies and gentlemen, as a reminder to ask a question at this time you will need to press Star then one on your telephone.
Withdraw your question press the pound key.
Our first question comes from Ryan Hamilton with Morgan Dempsey.
And is now open.
Good morning, everyone.
Good morning.
I was wondering if you could maybe give us a little bit more color on the quarters cadence what a July look like relative to June and so on because just walk through the quarter.
Well July was a very slow and candidly that's what we have our when we shut down for maintenance and all the factories.
And then throughout the quarter, we saw things pick up which is somewhat typical given the fall hunting season. So the normal seasonality set in September was much better than than July and and somewhat better than August .
Excellent excellent.
You touched a little bit on head count what are your ships looking like at the three plants.
Well you know with the supercell concept. Some some of the cells are running as much as a what we call.
24, seven in the sense of their working six or seven different shifts the overlap into the weekend others are just working on first shift so it really depends on the individual product line and the cells.
Okay, and you talked a little bit about attrition or your Oh, Your engineering teams staff to close to historic levels, and where you're comfortable with.
Yes, I, primarily when I was talking about attrition referring to our.
Early workforce direct labor force at the factories are engineering teams are fully engaged in and very stable candidly and we do a lot more sharing of engineering resources now between the three factories.
Okay are you seeing any any kind of shortages as far as people are you.
Talented you can't find.
No I don't think that's the case, we're just trying to be cautious as we hire and just make sure we're smart as far as we move forward.
Throughout the year and we know the firearms industries has a lot of cyclicality in it and so we try to manage through both the highs and lows in a responsible fashion.
Absolutely I I've got one more and I will jump in line how about commodities are you seeing any any notable changes or or concerns in any the materials you guys used.
Not really nothing that's impacting production or costs.
Some time ago, you know I commented on the steel tariffs that.
I didnt affect us directly in that we use only domestic produce steel, but the issue was the tightening of supply.
And increased costs from our domestic suppliers that seems to have settled down.
Okay sounds good thanks, Thank you very much.
Our next question comes from Brian Rafn with Morgan Dempsey. Your line is now open.
Hey, guys, how you doing.
Hi, Brian .
Hey talk a little bit about yeah, you talked a little but the cadence what is your sense of sell through.
You know kind of pretty hunting for the rifle long gun market be the bolt action oriented SAR.
Well in the certainly in a bolt action category.
We saw some very solid sales with particularly with our American Centerfire rifle.
Yes, we are very very pleased with the launch of.
Both the standard Threefifty Bushmaster skews and product line and then a variety of distributor exclusives. They really help I think move things along in that category I know.
Cartridge seems to be gaining traction, particularly in the states that have the straight wall cartridge laws and so that certainly help and those niche cartridges, whether things like the 350 bushmaster.
The six five create more things like that those are those are really help the that fall hunting market.
Okay. If you look at 2018 going back into kind of the discounting.
So back you kind of the fall off 2016 into 2017, you saw 30, 35%. Some cases, 40% discounts kind of MSRP. If you looked at counted the discounting extension of credit rebates.
Would you say 2019 is the deep as 2017 18 give me a sense of how does the how this year loss.
I am not not 100% certain Brian as far as our two periods compare it's pretty significant discounting going on right now.
We're seeing some.
Very low pricing on a awesome centerfire pistol.
We're still hear low prices on a ours and they are category.
So there's some pretty significant discounting out there and I think retailers are being smart as far as managing their inventories and frankly waiting for the deals because they know they're coming.
Yeah Okay.
Kind of the overhang on Allen Brothers, you got any anecdotal information on what kind of their liquidation all that's over on the market and maybe what your sense how that plays out through the end of the year into 2020.
On Ruger product.
Well the Ruger product is long gone from obviously the liquidation of the inventory the challenge is that the.
The liquidation price points remain longer than the product does and so customers who saw those like liquidating.
Liquidating actions taken place by the bankruptcy trustees, and then remember those prices that negatively impacts us in the short term I think were largely through that the biggest thing we miss what I want to distributor exits the business is frankly, the extension of capital to the independent retailers there there.
Extending credit terms.
And it might be a as small as a $10000 credit line to a small independent or might be much more but when that capital leaves the channel that has an impact, especially on a company like Ruger, where we have 100% of our sales go through two step distribution.
Yeah, Okay, I should I got you on how even given that many overlay.
The situation with bass pro buying Abella, Gander mountain rebranding as Gander outdoor.
So on the retail side, how much disruption has been from the retailers and bankruptcies and sub.
Well I think you know it's been a while since one of the big retailers file bankruptcy, which is a good thing they're impacted to some degree when one of distributor like United Sporting which included both Allen brothers and Jerry's.
Goes out because they have to find new source of supply and so we worked very closely even though we don't sell those big box accounts direct.
We have a very solid team that works hard to make sure. We we help them in that transition to make sure we're up to speed on getting the products I need for their circulars and Flyers and try to demand is that transition as best we can yes. Okay. Now you guys talked about being down what else Jerrys and then I think you mentioned that there.
Our three more smaller distributors are there any any gaps geographically for you guys or are you out.
Looking for any other wholesale distributors. So that you may not have done business with them the path.
Well I wouldn't say, there's any gaps geographically, although there are distributors tend to focus a little more on on their regional strengths.
I would I worry about is the smaller independents, maybe being neglected by our larger distributors as they look to the snap up business at the.
Bigger shops, so do worry to make sure we're getting good coverage our salesforce in the field is making sure that as best they can they are connecting retailers with the alternate sources of supply, but again that the lack of the the extension of credit is something we have to keep our eye on.
Okay. You guys have you had a nice launch in product you mentioned it December 2017, and it really help your 18 numbers in new product sales was that just the was that a function of something that was planned for the holiday in the shot show in the 18 or was that just something that just kind.
You know manifested itself naturally.
I'd, probably say more they.
The latter.
We are ideal scenario is a steady cadence of new products throughout the year.
The challenge is invariably a new products are more likely to be late than they are early so when that happens you have some that you certainly want to make some of those deadlines be it a end of year, but more importantly, something like the shot show and kicking off the year when we're in front of indeed in front of retailers.
To make sure we're going to let them know what's coming so I would say that was kind of an anomaly. We do have a several more key new products that are teed up that I'm very excited about that.
Standby as we say they've got some great things coming and we've already had some great launches. This year I mean, so we're very excited with the.
The.
New models with pistol caliber car being the Wrangler of course has been probably the biggest hit and.
That's a gun that we continue to chase production that was again I was referring to with when we talk about run around the clock just try to keep up with demand for the wrangler and even though it's a low low price point.
It gets a lot of attention gets the covers and gets.
A lot of lot of attraction from but consumer.
Are you still running behind we always talk about.
Giving you know the production overtime right getting enough inventory on launch date and that are you still you still sounds like you're you're still seeing demand outstrip supply in the wrangler.
We are and Weve.
We're still limiting our production to only the three original SK use the three different colors, we've got lots of headway there with distributor specials and then other product line extensions that may come down the road.
Got you.
Chris you talked about a 120 year to date in dealer special packages.
How does that rate.
You know over time, you go back for nine months or whatever or maybe run rate for 2019 versus other years.
Well, we we tend to always do distributor specials, we never.
We never try to cut those off even in good times, but I would say when things slow down we we make good use of distributor exclusives and special launches because it can be very important to our customers keep them excited keep them coming in.
Some of them or not necessarily.
Blockbusters in terms of radically different designs some of them may just be a different color or different camouflage pattern, but again, it's a little bit extra excitement on the retail floor and gives our distributor salespeople who are largely on the phone something to talk about when they when they dial up there they're retailers.
I'll just ask one more and get back in line, how you guys you've had now.
Andy will more than a year on the were costing shops, how have those units in the demand the interest.
Volume sell through for the.
At a 911, you got a coffee products in the good or custom shops, how would that met your expectations.
Well, it's gone very well so far I mean as you would expect is relatively low volume compared to our standard production, but we've been very pleased with the products, we've come out with and we've taken a very very.
I will say slow and steady approach wanted to make sure we're delivering the right level of value and.
And performance in those guns and not taking shortcuts as we try to gain traction with the customer shops. So so far we're very pleased with that from great models out there and we're excited about the other ones we have in the pipeline.
Got you I'll get back in line. Thanks.
Our next question comes from James Crusher with a private Investor. Your line is now open.
Good morning.
Good morning.
You know I've owned Ruger products, great products, great customer service.
It is beyond the you know with.
CSPI background checks that are higher and the stock is not so on price.
I just don't understand it that you could add on to Pcsknine carbine was grades your LC ours. Your customer service is outstanding and I was just wondering are you planning on having more buybacks.
Thank you James we appreciate your support.
The our end users like you are the backbone of our company. We sure appreciate your support over the years.
You don't want it when it comes to buybacks. We don't comment on specific answer is related to our stock repurchases, but I can tell you that we had $87 million remaining on the repurchase authorization at the end of the third quarter, our strategy really hasn't changed as I said earlier, our primary focus his stewardship of the stare shareholders assets.
And what we believe the stock is significantly undervalued.
That may be the time, when we were repurchase of shares as you as you May know, we do that through a vehicle called Tenbfive, one which is kind of a structured trading plan and that's sometimes restricts our ability to some extent to jump in and out of the market quickly. So again, we like to maintain a structured approach to that but that is stuff that we still got 80.
7 million remaining on the repurchase authorization. So that's one will standby and see how things develop.
All right. Thank you for your your answers I appreciate it.
Thank you James.
Our next question comes from Jaafar as match with Canada LLC. Your line is now open.
Good morning, Thanks for taking my call good morning.
Couple of questions for you first one relates to just a general.
Business philosophy that in an industry, where people historically haven't seem to understand working capital management and cash generation.
Ruger has been a nice.
And my question is.
As the worm turns with the with the retailer bankruptcies the distributor blow outs isn't the case that we're in a new normal that we don't have the Lou Lou negotiating leverage Lisa previously.
To keep managing working capital the way, we haven't generate cash.
Can you give me any commentary on the insight.
Actually we we think we're pretty well position.
With that environment, we we look at what's going on we look at the the debt structure some of our competitors.
Some of the retailers and then what's happened to some of the.
Some of our distributors.
And we think our capital policy and our position is going to help us.
So as we navigate through those water. So I think we're well positioned for we watch it very closely we look at other options.
It was much is two step distribution works for Ruger there are other options out there we've looked at that there are some other distribution options, but right now we think the prudent choice for US is to stay the course, and we think we can manage through some of these headwinds we're seeing out there in a marketplace.
Okay, so things on.
Customer payment terms and things like that that you guys have been very very disciplined on your of the mine.
We're kind of animal and maybe a weird period and that if you stay the course the old days, we'll come back.
I don't know if they'll come back as they once were it's hard to predict the future, but we.
We're very disciplined bulk of our distributors you know and how we run the business. Our distributors are are all current I think were 99% current right now we had credit insurance on the.
Actually sport in the United Sporting when they went out so we maintained a credit insurance and or light lines of credit.
As of credit with with each of our distributors. So again that insulate us in some of those downturn. So I think we're managing it pretty well.
We could be more aggressive, but right now the seems to workforce that we look at whats gone out there. We think we're probably well positioned whether it's from a managing through distribution issues or possibly looking at acquisitions and things of that nature that may or may make themselves available.
Got it on the acquisition front.
Is there anything from a legal standpoint that would keep you guys away from Remington for instance, the class action litigation that was allowed to right through the pre packed bankruptcy is there any legal concerns nonbusiness concerns that we'll keep you had an accurate.
There might be and that's why you know we'd have to look at each one of those options and the other night.
If and when that came to pass them and were pretty rigorous in terms of our due diligence and we would leave no stone unturned as they say in so that would be part of our decision process on how that deal a deal.
Something like that hypothetically might be structured.
Got it has there been any any constant conversations internally about a DTC offering direct to consumer offerings.
No we've not heard entertain that that I can recall in recent history. So.
Okay, and then lastly on the share repurchase that you did.
I know you can't talk a lot, but could you shed any light on.
Why such a small amount what the dynamics was behind this.
Well you know like I mentioned before I think.
James asked the question the limitations a tenbfive one you know we we put those planned trading.
Documents in place.
Early early on and then the long horizon waiting period, a long horizon, and then you want to execute sometimes it may not be.
As you would like to in the current moment, but you've already got to set up their six to nine months out and Thats were somewhat limited by the execution of those plans.
Understood. Thank you very much.
Thank you.
As a reminder, ladies and gentlemen, if you would like to ask a question at this time that Star then one.
We have a follow up question from the line of Bryan Robson with Morgan Dempsey. Your line is now open.
Yeah, Chris in the modern Sporting rifles, Oh, how has the the higher end.
Our line held up in units and pricing versus.
Some of the yard seems to be most of the discounting is down in that.
567 hundred dollar a argon how is the high end MSR lines held up.
Well, we've actually got the MSR line on hiatus right now we haven't built some built any of the.
As our Sevensix twos or us our 556 is in some time.
We have however in addition to our baseline they are five six we've got several versions in that family will have the like the MPR. The multi purpose rifle that have done very well for us at a slightly higher price point, but not at the same price points that the.
Yes, our series were Ed.
Okay, not do you maintain any inventory and the older Sars or is that something is that kind of 2013 14 market was really you know the RFP. It seems that attends were when it went outside so you could sell that it would you say hiatus that is meeting discontinued like the shotgun line is that just.
Something you would you still have the mold you still up.
The gun could be produced or is that something it just discontinued.
Yeah. It's it's like I said, it's we're not building any right now we still got work in process. We still got parts, we still got the ability to make them. They would be made down are made in facility is just with the as they are market has changed we've changed our direction and capitalized on the the lower price point era.
Hi Fi six family.
Yes got you've got you you bet is a little bit how much machinery and the third quarter you guys did anything ship major.
Between Prescott, Newport and made them in.
Machine tools or.
Supermodels.
Well actually we had machines moving all three directions, we were just out for our board meeting in Prescot and it's amazing the amount of equipment that has moved between the three facilities. We've got got machines that have actually seen.
Life in all three plants.
As a supercell goes into existence, we're doing an inventory of the line that maybe winding down or decreasing capacity and we're trying to make sure we harvest those machines smartly.
And that's part of our capital strategy when we're looking at new product launches and then.
Some machines are worn out and tired you've got to replacement at all the time, we need new machines. It for new capabilities. So we try to balance all that out and that's where our capex. The last couple of years we've been.
Very effective as in terms of moving those machines between the facilities.
Yeah. Okay lets you still are buying you are you still are buying in some cases and it was a $50 million budget. This year you are buying some new CNC machines as stuff wears out you're not just go ahead.
Absolutely we've got.
Got you see in CNC machines coming all the time, we've got and we're looking at our GFM capacity to per barrel production. So.
We're absolutely looking at that we just want to be fiscally prudent in terms of how we're spending the money and a lot of that Capex is still things like.
You also have some things that maintenance you have things are fixtures tools engages so all those have to go along your Capex. In addition to just the new machines.
Gotcha Gotcha.
Anything yet you still running I guess in too.
Many furnaces or whatever and anything on the domain main furnace meeting a grade one.
No pretty stable at Pine tree castings, right now the to rollover furnaces are doing well and supply and most of our casting needs.
We still have the main furnace in used primarily just handle on what we call the revert or the trees that are associated with the casting process, but not really making on many many parts of the main using the main legacy foundry.
Yeah.
Thomas strategy question Chris.
Way back when.
Bill Ruger was around there was a business and castings that they did the callaway.
Gulf called heads and they did some oh I'll fall pain cameras and the itself for light snowmobiles and is there any interest in doing any outside castlereagh or is it better just the focus on your core.
Well.
The those Callaway club edge remember those were titanium and today, we were just making steel, but the biggest thing we've seen as you know so much of that casting business for non firearms parts moved offshore.
The.
The suppliers in China. Despite the fact that we have the tariffs in place and things of that nature.
That's where a lot of that the low end casting business moved offshore and so you know in our case, we found it doesn't make sense to chase it at the at least at the present time always a possibility, but we do get request a quote certain things, which we do but are outside businesses fairly minimal at this point yeah. Okay. That's.
You guys a onetime we're running.
Yeah, something on the order of 85 90 engineers it sounds like gets pretty stable. When you look at and I'm going way back into the night Rugers sign up product development cycle from concept to production prototyping.
In some cases in almost four years 48 months, where would you guys E. Kinda today and I know what it varies on different products in that but you know we or maybe what is your thought process. What you would see is maybe a good strategic.
Our quarterly product launches in time or is it just so far it's just all over the park depending on the different product.
Well I mean, some products have more of a an R&D component and those always take longer and so what we try to do is if it's got the R&D phase we try to get that.
Done and finished before we actually put it into one of our new product teams is once we hit the teams we want to be able to execute and so the teams typically involve manufacturing engineers from the shop floor as well as design engineers purchasing folks product managers.
And project managers and all those folks.
Once they're out of the R&D would so to speak they can execute pretty cleanly, but it's the R&D phase at sometimes can boggus down and keep us from getting out as quickly as we'd like.
Okay and then the.
The vertical integration.
Parts manufacturer down and what does the newer.
Missouri or or I'm, sorry, because it's outside of our city.
Then there yet.
Are utilizing that anymore is that kind of stabilized.
It's kind of looking for your your ability to source kind of internal product.
Content versus outsourcing.
Yes, good question.
The best thing about RPM Ruger precision metals is how would that acquisition and integration into our company is our ability to cut lead times on new products.
In terms of there's quite a few metal injection molding providers out there and we still use a lot of outside suppliers, but having our own on NIM house has proven to be very effective in terms of.
What we call lightning tools and our ability to really go out quickly and get prototype parts made get the initial initial launch quantities built and get that ramped up far quicker than we used.
Deal and just with outside folks.
Got you have got you let me ask.
The the Treasury repurchase a question has been asked a lot.
Ex the you're just normal cash dividend policy would you say that from a higher you standpoint that treasury repurchases over that safety net.
As more of a board priority, even see a special cash dividend over and above the regular dividend.
No I think we just because of our cash position the T bills or just a good place to park park that money that in a super safe category, but not necessarily in lieu of.
Either share repurchase or a special dividend.
Okay. Okay.
And then just done on I think you're making head count. It at about 1600 are you doing any hiring or the yeah. I think you said hiring freeze you know does that also include you know you know one off engineers in that or how how how hard is that hiring freeze.
Well, primarily on a direct labor front, but we've already we've been hiring all along in our made in North Carolina facility and we read recently started hiring back in the in the New Hampshire facility and really if we've got good engineering talent to either be replaced or recruited that hasn't slowed down.
Also did a full round of internships. This summer with engineers and that's been a very very good recruiting ground for us to bring in new engineers into the Ruger family. So that all continued.
As it would in any other year Gotcha, and then everyone. You know the constantly query you on acquisitions in that and I understand the background of that but how important are our some of the joint projects that you know the co branding you know what you guys did Columbia River knife in some of those.
Hi, there, it's a little more of a knits I know, they're not big needle movers and sales revenue, but how how active are viable was that or are those just episodic one offs.
I think they're largely a one off I mean, that's a branding and licensing part of the business and you have something like.
Columbia River or our friends at home, we're actually do the air guns.
Well more acts in particular that can be a good theater to us as far as you know getting somebody interested in the Ruger brand of the younger age and so.
But again those aren't really needle movers in terms of revenue.
Gotcha, and then from a strategic standpoint.
You know the last the you know you had kind of Rod in 2012 13 was the our tansey or Fifteens and then again in 92015 16 with these I would call palm guns, you'll be smaller.
We like the LCR the pissed for revolver do you see any different transformational concepts that you're going to talk about that maybe you see anything different that might bring some interest you know back into a.
New normalized market Thats, certainly off its peak from where it was a.
Past couple of years I'm, just talking from a kind of a design standpoint.
Good question, where we're looking at a variety of things Brian I would tell you. The yes. We've got for example, the LCP one and LCP to continue to be very strong the cnine asses. The next generation of the Lcnine family. So we've really.
Really done a good job I think of extending those products were looking at different versions that are out there look at where the niches might be.
You know and it's always a balancing act where is that niche and what's the price point, we have to be at.
And that's one of those things like the wrangler for US was dramatically different you know as a single action revolver, we participate in that market at a fairly high price point and it's very stable for us.
But somewhat limited the top of the pyramid in terms of single action products for the most part Where's the wrangler really open things up dramatically for us not a dramatically different designed by any means but by being able to hit that different price point. It really open things up for us and frankly got people more interested in single action family.
Got you Oh, Hey, appreciate all the color not so awesome. Thanks, again and the best of luck guys keep the thanks, Brian .
Okay, Alright bye bye.
Our next question comes from Rob Schwartz with Cooper Creek. Your line is now open.
Hey, guys. Congratulations on the on the forward orders here just given the sequence the sequential acceleration throughout the quarter and.
Your forward units ordered about 52% can you talk about sort of whats happened.
The China on how that acceleration resulted in maybe how things went from September into October here.
Well I mean, you to be honest, we we don't pay as much attention as maybe people think we do in terms of the orders. We will really want is what's selling from our distributors and they report that weekly to US every Monday, we get to download from our distributors on what they are selling into retail.
And then would be watch what their inventory is in our inventory that's really how we run the business I mean, it sounds counterintuitive will but we were really don't pay much attention to the orders. It's always good sign but sometimes that's associated with new product launch. So when you have a new product launch like the fiscal calendar car being that we just just put out there you may have an influx of.
Orders.
So what the at the gross Love you May see that you may see something like in the case of the the wrangler, which are relatively lower price point, you see a bunch of orders that come in but the average selling price that is lower than what you are seeing before so that buys is down that sales price of your units on order and so some.
I'm trying to those those numbers are can be explained by a one big product launch and what's in there for the backlog.
Okay and in terms of de acceleration throughout the quarter or less worse throughout the quarter.
Did that continue into October did October see a large OEM.
Tick up.
Well I mean that would really be a little forward looking for us we don't comment on the things that we havent closed out in our in our financial documents. So I'd, rather not talk about that I would tell you that the fall hunting season remains in full swing and I think is solid.
But again, it's a very cyclical market, we're seeing the puts and takes on the ups and downs and.
You know, it's the seasonality that we.
Came back with the fall fall hunting products.
And I think you know as we go forward is going to be interested to see as we get closer to election cycle, whether there's any impact.
Okay. Thank you very much.
Our next question comes from Peter Garrett Private Investor. Your line is now open.
Hi, I'd like to go back to the.
Distributor bankruptcy issue.
Sure three months ago Oh.
Mid distributor bankruptcy did significant damage to your quarterly numbers.
And.
And your current quarterly release, you mentioned the same distributor bankruptcy by referring to quote the market disruption caused by the.
Liquidation of its inventory Ruger products.
My question is.
Just a clarification on that bankruptcy.
Do you expect three months down the road, you're going to be referring to that bankruptcy again in your quarterly all statements.
Or is that issue behind us what I'm trying to do is just get a feel for.
Feel for the balance of headwinds between the soft demand in the marketplace.
And this distributor bankruptcy.
Well again, Ruger is somewhat more susceptible to impacts on that because of our reliance on two step holes wholesalers exclusively.
The inventory situation and when they liquidated somewhat.
Transitory and that its you'll want to dump the inventories gone the price points linger on but the long term effect of losing a sizable distributor remains as you as you shake out and try to get.
You need to have new suppliers identified for retailers.
That takes a little longer to happen and then the other thing like I mentioned is once you pull that the capital being extended in the form of credit to the independent retailers.
It's really incumbent on the other wholesalers to step up and extend hopefully a like amount of credit to recapture that business, both ruger and otherwise so that you see that happening.
Well right now it's in process I mean, the the product is long since gone from Ela brothers in Jerry's inventory.
But again it takes a while.
I'm doing this 30 years and it's always tough when when a big customer goes out to have that demand moved around to all the places you expected to be.
And that's how.
That's how you expect it will eventually work its way out the.
The distribution.
Capability that was lost will spread out to the existing distribution network.
Yes, essentially on its own yep, and well on its own it would help from our our salesforce. The distributor. The other distributors are hungry for that business are actively chasing it.
We just finished in October our meeting with all of our distributors at National Association of Sporting goods wholesalers.
And.
I can assure you they're all actively trying to chase that business and go after it. It just all not always is as smooth as just as you might think it is always a few speed bumps along the long the road as you get a retailer that maybe needs to establish a new credit rep.
Reputation within with the new distributor and so sometimes not always as smooth as we'd like to be.
Okay.
Yes.
So it's not.
Let me just trying to summarize what I'm hearing.
It's not the big headwind.
This bankruptcy that the big headwind that it was.
Three months ago, but we might still see bits and pieces of it hanging on for the next quarter or too.
Is that correct. It's certainly improving every week that goes by it certainly improving and you know again thats a.
The inventories long gone the price points and settle down and just it's a disruption, but we're I think that situation is improving every day.
So it's just the soft market place that you're dealing with primarily right now right.
Well I think some soft market places certainly some some struggles when we look at the seasonality.
When we look at our strengths and we look at our competitors discounting out there part of it is.
The other Soc market, but I will say again I wouldn't get too hung up on that again, the discounting levels that I've seen from our competitors are extreme and by maintain that that.
Disciplined approach to capital management, and our approach to receivables.
We've never extended payment terms to any distributor or customer.
In my memory.
Our competitors do that all the time, our terms or 2% 30 net 40, that's it if you don't pay you're not getting shift that is an anomaly. Most of our competitors are very flexible in terms of offering extended payment terms and when we don't sometimes in the short term that hurts us and Thats, where take talk about taking the long term view versus the short.
Sure.
Right right Okay.
One other question.
Our revenues this quarter are down.
Well there the basically the same as they were last quarter, there down like 1% 96 million versus 95 client.
But diluted earnings are down approximately 23% all 35 cents for share versus 27 cents per share.
Why earnings so much lower in this quarter compared to last quarter.
Well the biggest changes our which we took our production down and we took production down and you are sales value of production decreased and we also is a mix issues, but the biggest thing is we you know with running three factories, when we take down production to manage our inventories that has a big impact on our profitability.
Okay. Okay.
All right.
That's all I have thank you. Thank you.
And that will conclude today's question and answer session I'd like to turn the call back to Mr. Miller for closing remarks.
Well. Thank you I would like to thank our 1600 employees for their hard work and dedication and with veterans day on Monday I want to thank all veterans, especially our many employees are served our country before joining the Ruger team and those that continue to serve today and the National Guard and reserve.
Thank you for attending our conference call and for your continued interest in Ruger I look forward to speaking with you at our yearend earnings call in February .
Ladies and gentlemen, this concludes today's conference call. Thank you for participating now disconnect.