Q2 2020 Sturm Ruger & Company Inc Earnings Call
[music], ladies and gentlemen, thank you for standing by and welcome to the storm Ruger second quarter Twentytwenty earnings Conference call.
At this time, all participants are not listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone. Please be advised that this conference is being recorded if you require any further assistance Please press star and zero.
I'll now hand to conference over to your Chief Executive Officer, Chris Killoy.
Good morning, and welcome to the Sturm Ruger and company's second quarter 2020 conference call before we get started I would like to ask Kevin read our general counsel to read the caution or forward looking statements Kevin.
Sure, Chris we want to remind everyone that statements made in the course of this meeting with the company's or management's intentions hopes beliefs expectations or predictions of the future are forward looking statements 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 contained from time to time in the company SEC filings, including but not limited to the company's reports on form 10-K for the year ended December 31st 2018 and of course on the form 10-Q for the second quarter 2020.
We filed last night.
A copy these documents may be obtained by contacting the company or the FCC on the company website at Ruby Dotcom forward fresh corporate or of course, the FCC website FCC Dot Gov 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-K.
For the year ended December 31st 29 team and our form 10-Q for the second quarter Twentytwenty, both of which are posted on our website. Furthermore, the company disclaims all responsibility to update forward looking statements gross.
Thank you Kevin.
Before we discuss our second quarter results I want to provide an update on the impact of the Corona virus pandemic Ur Cobot 19 has had on Ruger.
The covered 19 pandemic continues the caf uncertainty throughout the global economy.
Nevertheless, any adverse financial impact on our business, resulting from coping 19 was negligible in the second quarter of 2020.
Since it's offset in March we have remain proactive in maintaining the health and safety of our employees and mitigating its impact on our business.
By one providing all hourly employees with additional two weeks of paid time off.
Encouraging employees to continue to work remotely wherever possible and maintaining social distancing throughout each manufacturing facility, including in every manufacturing cell.
Suspending hiring from March until June one, we're confident that we could resume onboarding and training in a safe and responsible manner for all involved.
Confidentially communicating with and assisting employees with potential health health issues through our dedicated facility nurses.
Restricting visit or access to minimize the introduction of new people to the factory environment.
Implementing additional cleaning <unk> sanitizing, and other health and safety procedures to maintain a clean and safe workplace.
And manufacturing and donating personal protective equipment PE, two hospitals health care facilities, and police and fire departments in our local communities.
The cost of these actions are expected to total approximately $3 million in 2020 of which approximately $1.6 million was recognized during the first half of 2020.
At the same time, we also experienced some expense reductions and deferrals in certain areas of our business, including reduced conference and trade show participation costs reduced travel expenditures reductions and delays in sponsorships and advertising.
These expense reductions and deferrals, which approximately approximate $1 million occurred almost entirely in the second quarter.
The future impact of Coven 19 remains uncertain.
We have been fortunate to have only limited restrictions on our operations thus far.
Our financial strength, evidenced by our debt free balance sheet provides financial security and flexibility as we continue to manage through this crisis and focus on a long term term success and creation of shareholder value.
The dedication and perseverance of our loyal 1600 employees has been and we'll continue to be instrumental to our success in the face of this crisis I could not be proud of how everyone. At Ruger has responded to this crisis.
Now I'll ask Tom Dineen, our Chief Financial Officer to give an overview of the second quarter financial results and then I will discuss the current market and update you on our operations and then we'll get to your questions Tom.
Thanks, Chris.
For the second quarter of 2020, net sales were $130.3 million and diluted earnings were one dollar and five cents per share.
For the comparable prior year period, net sales were $96.3 million and diluted earnings were 35 cents per share.
For the first six months of 2020.
Net sales were $253.9 million and diluted earnings were $1.91 cents per share.
For the corresponding period in 2019.
Net sales were a $210.4 million and diluted earnings were one dollar a nine cents per share.
The 35% increase in second quarter sales and reduced reliance on sales promotions were the main drivers of our significantly improved earnings which tripled last year's results.
The balance sheet.
At June 27, 2020, our cash and short term investments totaled $226.6 million.
Our current ratio was 3.9 to one and we have no debt.
At June 27, 2020, stockholders' equity totaled $311.5 billion.
Which equates to a book value of $17 in 80 cents per share.
Cash provided by operations during the first half of 2020 was $78.1 million.
Cash returned to shareholders.
In the first six months of 2020, the company returned $9.3 million to its shareholders through the payment of dividends.
This quarter, our board of directors declared two dividends for our shareholders.
The first is our normal quarterly dividend, which is approximately 40% of net income. This dividend is 42 cents per share.
The second dividend declared as a special dividend of $5 per share.
Both dividends will be paid to shareholders of record as of August 14th 2020, and our payable on August 28 2020.
Chris will provide further commentary on the special dividend shortly.
Thats the financial update for the second quarter.
Chris.
Thanks, Tom.
Demand consumer demand, which began to surge in the latter stages of the first quarter continue to intensify in the second quarter.
The estimated unit sell through a group of products from the independent distributors to retailers increased 47% in the first half of 2020 compared to the prior year period.
For the same period, the national instant criminal background checks system background checks as adjusted by the National shooting Sports Foundation, commonly referred to as adjusted Nics increased 65%.
For the second quarter of 2020, adjusted Nics increased 93% from the prior year.
This staggering increase in demand appears to be attributable to a few factors.
Number one concerns about personal protection and home defense stemming from continuing cobot 19 pandemic.
Protests demonstrations and civil unrest in many cities throughout the United States.
And lastly, the call by some for the reduction in funding and authority of various law enforcement organizations.
New products.
Sales of new products represented $48 million or 21% of our firearm sales in the first half of 2020.
New product sales include only major new products that were introduced in the past two years, which include.
The Ruger five seven pestle.
The LCP two in 22 long rifle.
The wrangler revolver.
The PC charger and they are 556 festival.
As a reminder, derivatives and product line extensions of mature product families are not included in our new product sales calculation, but they provide great value at all points in our distribution channel, including our immediate customers the independent wholesale distributors the retailers.
And the ultimate consumer notably in the second quarter, we launched 616, new distributor exclusive and product line extensions.
Production and inventory.
Incredible surge in demand outstripped, our production capability during the second quarter.
As a result, the combined inventories in our warehouses and ordered at our distributors decreased 127000 units.
Although we do not have comprehensive inventory data at the retail level.
The retail information, we gather suggests that retailer inventory of Ruger as well as most of the firearms brands was largely depleted in the second quarter and remains at very low levels.
I mentioned earlier that we had suspended hiring from March until June I'm happy to report that are higher efforts are going very well on our current headcount has increased by over 50 employees since the end of the first quarter.
Capital expenditures.
Capital expenditures in the first half the year were $5.9 million.
Our engineering teams are actively engaged in developing new products and I look forward to providing updates throughout 2020.
We will also invest in targeted capacity expansions for some of our product families in the greatest demand. Accordingly, we expect our total capital expenditures to approximate $20 million in 2020.
Cash short term investments and the special dividends.
Our cash and short term investments balance was $227 million at the end of June.
We decided to returned $5 per share or $90 million to our shareholders through a special dividend.
We made this decision for a number of reasons.
Number one the most obvious reason, but one that shouldn't be overlooked is our cash and short term investment balance is more than we need to support our operations.
To the second reason is our cash generation, which has been consistently strong.
The site, despite paying out 40% of our net income through quarterly dividends and annually reinvesting an average of $30 million back into the company through capital expenditures in the past 10 years, our cash holdings continue to grow.
Three our balance of cash and T. Bills. After this dividend is paid will still leave us in a strong financial position to continue to invest in capital expenditures in support of our commitment to new product development and innovation.
Maintain our quarterly dividend.
And pursue opportunities that would further generate shareholder value.
For lastly, our longstanding capital allocation philosophy is to return capital to our shareholders. When we accumulate more cash than we believe we can responsibly employee to generate shareholder value.
Operator may we have the first question.
And ladies and gentlemen, easy question at the time just press Star then one on your telephone keypad to remove yourself from the Q just transship count key our first question is some Ryan Hamilton with Morgan Dempsey. Please go ahead.
Hey.
Good morning, everyone hope everyone as well.
Good morning right.
I'd like to lead off with.
My next question from last call you kind of asked.
On how does this compares current surge kind of compare to late 2012 in 2013, I know you detail, but a little bit last quarter I'm just kind of curious if your thoughts are the same this quarter.
Well I do think this this surge is different than what we saw in 13.
I haven't been doing in this industry for 30 years I saw the third to 1994 before the.
So weapons van took place this is probably the strongest level of demand that I've seen.
One of the most significant differences is the.
How is impact at all levels of the channel and the impact on inventory at all levels just a trip to your local done store will confirm some of the information that we talked about as far as the inventory that is available for purchase and again it was significant significant strong and appears to be.
Continuing to to sustain itself as we move start out the third quarter.
Great that kind of leads into a further question I am an avid.
Hi, good theres quite a bit and took out inventories and whatnot.
One thing that I had been noticing along with.
With decreased inventories in firearms and also noticing ammo kind of been picked kind of.
Clean off the shelves at some level does that start to impact your business with all of someone buys a brand new gone or new gone and they can't get ammo for it.
We've seen that in the past you may recall several years back where we felt the sale of some of our 22 rimfire firearms are being impacted by the low availability of the 22 ammo, we havent seen that impact on firearms, yet I believe it's certainly.
At retail level, a lot of firearms dealers.
Will ensure that for the purchase of the new fire arm. They have at least a minimal supply of ammunition in the right caliber for that firearm. So they can support there certainly their first time buyers and there are new customers coming into their stores. So we're not seeing that isn't as a negative impact.
On the firearm side.
At least at this point that we've heard.
Okay could you kind of walk us through the quarter the cadence how does it look compared to last year in May and June.
Well, we typically don't break down into the into individual quarters, the biggest thing or excuse me individual months within the quarter.
But I would tell you in April we were still feeling our way through the response to the.
Corona virus and its impact on our factories. So we spent a significant time.
In every factory working to keep our folks say.
Putting into place practices to ensure that we're checking temperatures of people coming to work were screening them we're having.
People.
If they had to travel out of town coordinate with our nursing staff to make sure. They are returning or in some cases needing to self quarantine and self isolate so that was a big adjustment in April and then.
As we work through that we have a great team in place between our our HR people are.
He just staff and our operations leaders and of course, our nursing staff. They did a great job kind of getting a through that transition. We never lost a day of production, we had some impacts to individual lines for shift or too.
In all cases were able to keep all of our factories open and operating and so that was the biggest thing is that changes as that cadence change the demand with solid throughout but what we really saw was.
Unfortunately, we got used to dealing with covert 19, and our practices and procedures really solidified and.
We were able to do become much more of a routine even though we had implemented those procedures in place to keep our folks safe in the factors.
Thats Great you guys are fantastic operators.
Could you talk a little bit about how.
What the ships are looking like.
Different plants.
Well all the factories are trying to maximize their particular product lines. It's it's not always a question of just running three shifts certainly some areas run multiple shift into the weekend.
What we call four or five and six shifts where you're running.
312 hour days stratum a weekend on certain line a lot depends on the machinery in place and then as we noted in some lines, we have the ability to move some.
Some equipment to rapidly support some expansion and our folks or become very very skilled at that and they're working very hard to keep up with demand as best we can.
Sounds good in the last one for me.
Any commodity inflation of note.
Not that we've seen.
One of the benefits of our strong balance sheet is our ability to maintain a good supply the raw materials, we need to run our businesses. So we really haven't seen anything we watch very closely.
We certainly look at economic indicators like installation like commodity pricing, but to date it hasnt impacted.
Our operations.
Sounds good I'll get back in line. Thank you very much.
Thank you how much and how we land and gentlemen to ask a question just press Star then one to getting the Kim. Our next question is from Mark Smith with Lake Street Capital. Please go ahead.
Good morning, guys.
First question for me wanted to talk a little bit about production levels.
Can you guys get back to this 500000 or so units on a quarterly basis.
And maybe talk about production why it ran at lower levels of these kind of peak historical levels given the strong demand in Q2.
Well when you when you talked peak historical levels, when you're talking about Ruger going back some number of years a lot of that was concentrated in a few product lines.
Back at that time, probably the LCP and 10 20 to come come most of mine.
Our operations team is very skilled at reconfigure our product lines move equipment around to support.
The diverse products, we make and so it is a combination of.
Trying to move equipment to support where the demand is and in this case, we're seeing demand across of across the board I mean strong demand and everything from 10, 20, twos and hunting rifles, all the way through our a our five by six and.
Pistol categories.
So you're trying to support those lines and then the biggest factor is we're very cautious in terms of.
Staffing.
During this pandemic one of the things that we obviously focused on of the health and safety of our employees and for that reason as we noted we didn't hire from March to June we turn that back on doing very well as our with our hiring efforts.
But that was that was.
A known constraint that we made as a management team to keep our focus I'll keep our folks safe we did a fantastic job with that we're still doing a fantastic job with it but bringing new people into the factory and then training them and as you would expect training people in a factory environment within a manufacturing cell.
Well were engaged in one piece flow of products.
There's a lot of.
I will say hands on and over the shoulder communication to get into associate up to speed. So we're using some fairly novel training techniques doing some things in the classroom of course, but then also using headset the microphones to train new associates on each.
Audience, new staff position and candidly our approach there likely limited our ability to increase production rapidly in Q2, but that was a conscious decision and one that frankly, I'm very satisfied with and proud that we put the safety of our employees first and foremost.
Okay.
That makes sense.
You talked about Chris I think in your.
In your commentary a little bit about hiring 50, new employees I think those since you ended the quarter. If you looked at today production versus maybe mid Q2 any idea on kind of a percentage increase of where you're adding kind of your capacity opportunity here.
Well, we really don't.
Disclose those type of figures, but those folks are have started to make.
A meaningful contribution and our ops leaders have a very defined and good looking plan in front of them to work on.
Achieving a production needed to support demand and we're going to continue to do that and I think we're in a very good place.
Okay.
And then just turning to market share in competition.
I know you've talked a little bit about moving machinery and stuff how much you guys able today to focus on high demand products and calibers and then also you brought up hunton firearms, what's kind of your outlook as you look at more historical kind of hunting rifles versus pure self defense firearms, especially as we move.
Moving to the fall hunting season.
I guess, maybe last question first that on hunting the hunting category, we've been pleasantly surprised.
With the demand being pretty much across the board, but when we talk about hunting I mean, one of the the more macro trends when you look at what's going on in society.
The the ability of.
People to do things close to home get back to their routes take up some of their passions and hobbies that maybe they had put on hold when area will travel more frequently.
We're seeing strong interest in hunting the whole field to Fourq movement. If you will is strong and we think thats part of the what we're seeing as far as the attention to our in our case, our bolt action rifle line, which cuts across both hawkeyes, but predominantly our American centerfire.
Rifles, and again very strong will say the micro trends that we see as well as the macro within society.
But again, it's it's been strong demand across the board, we do as we talked about moving people and moving equipment.
Some lines are easier to move than others, and but people have been very flexible are again, our ops leaders have been very good about we've actually idled a few lines, while we moved those people to help us with product more in demand.
And that's been very successful at the local level and I think we'll continue to pay dividends are our leaders and and our associates are all very flexible we've got a good team in place and and.
Whatever challenge, we throw at throw at them, they rise up and they succeed.
Perfect.
You guys talked a little bit about raw materials already but.
Two part question anything that you're seeing in gross profit was really strong gross profit margins during the quarter any headwinds or potential headwinds that you see there and then also on your selling expense running at very low levels.
How long do you think you can kind of maintain selling at these lower levels.
Given the strong demand and I assume the site, it's really just don't need to be promotional tool to move some of these firms today.
Well, that's a big factor for sure I mean, the promotional environment you will recall, we've talked about the.
The January or show season.
Promotional programs that we put in place along and many others in the industry.
And we also have in past years, we've put in place interim programs.
Some that would kick off in April or May some in September and right now we're not running any of those programs. So we still got a little bit to fulfill on some of the programs that kicked off in January but very small amount.
But that's a big impact and the fact that we're not having to run any those programs right now a leads to more stability in pricing throughout the marketplace as for Ruger products as well as.
I think you see going to see that impact on gross margins for the longer we stay in in that.
Decreased promotional environment.
The more of a positive impact it's going to have on gross margin dollars.
Excellent. Thank you guys.
Thank you outlined and ladies and gentlemen, I think we have a question just press Star then one getting the Q.
Plan any part of your question, Nick will like to turn the call back to Chris Killoy final remarks.
Thank you operator.
There when they just a moment.
I would like to again, thank our 1600 employees for their hard work and dedication during the difficult times on behalf of all of US at Ruger I also want to thank all the first responders nurses doctors and other emergency medical personnel, who continue to go into harm's way to fight this pandemic and help our fellow in there.
Buckets, where most in need.
Thank you for attending our conference call and for your continued interest in Ruger, we look forward to discussing our third quarter results in October.
They face.
And with that ladies and gentlemen, we thank you for participating in today's program. You may now disconnect have a mandate.
[music].
[music].
[music].
[music].
Ladies and gentlemen, thank you for standing by and welcome to the started a little girl second quarter Twentytwenty earnings Conference call.
At this time, all participants are not listen only mode. After the speakers presentation. There will be a question and answer session to ask the question. During the session deal will need to fresh start worn on your telephone. Please be advised that this conference is being recorded if you require any further I see them. Please press star and Sarah.
I'll now hand to conference over to you, our Chief Executive Officer, Chris Kimberly.
Good morning, and welcome to the Sturm Ruger and company second quarter 2020 conference call before we get started I would like to ask Kevin read our general counsel to read the caution or forward looking statements Kevin.
Sure, Chris we want to remind everyone that statements made in the course at this meeting the state the company's or management's intentions hopes beliefs expectations or predictions of the future or forward looking statements.
Note that the company actual results could differ materially from those projected in such forward looking if they.
Additional information concerning factors that could cause actual results could differ materially from those in the forward looking statements contained from time to time as a company FCC filings, including but not limited to the company reports on form 10-K for the year ended December 31st 20, <unk> and of course on the form 10-Q for the second quarter 2020.
We filed last night.
A copy these documents may be obtained by contacting the company or the FCC one of the company website <unk> Dot com forage box corporate workforce, yet your website FCC doesn't go.
You 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 2019, our form 10-Q for the second quarter Twentytwenty, both of which are posted on our website. Furthermore, the comedy disclaims all responsibility to update forward looking statements.
Great.
Thank you Kevin.
We discussed her second quarter results I want to provide an update on the impact that the Corona virus pandemic coping night team has had on Ruger.
The covert nighttime pandemic continues the caf uncertainty throughout the global economy.
No [laughter] any adverse financial impact on our business, resulting from coping 19 with negligible in the second quarter 20 Twond.
Since it's offset in March we remain proactive in maintained a health and safety of our employees and mitigating its impact on our business.
Well I want to providing all hourly employees what additional two weeks of paid time off.
Encouraging employees to continue to work remotely wherever possible and maintaining social distancing throughout each manufacturing facility, including in every manufacturing cell.
The spending hiring from March until June one, we're confident that we could resume onboarding and training in a safe responsible manner for all involved.
Confidentially communicating with and assisting employees with potential health health issues through our dedicated facility nurses.
Restricting visit or access to minimize the introduction of new people to the factory environment.
Implementing additional cleaning <unk> sanitizing, and other health and safety procedures to maintain a clean and safe workplace.
And manufacturing donating personal protective equipment P. P E. Two hospitals health care facilities, and police and fire departments in our local communities.
The cost of these actions are expected to total approximately $3 million in 2020 of which approximately $1.6 million was recognized during the first half of 2020.
At the same time, we also experienced some expense reduction and deferrals in certain areas of our business, including reduced conference and trade show participation costs reduced travel expenditures reductions and delays in sponsorships and advertising.
These expense reductions in deferrals, which approximately approximately $1 million occurred almost entirely in the second quarter.
The future impact of covert 19 remains uncertain.
We have been fortunate to have only limited restrictions on our operations thus far.
Our financial strength, evidenced by our debt free balance sheet provides financial security and flexibility as we continue to manage through this crisis and focus on a long term success in creationist shareholder value.
The dedication and perseverance, our loyal 1600 employees has been and we'll continue to be instrumental to our success in the face of this crisis I could not be proud of how else everyone. At River has responded this crisis.
Now I'll ask topping our chief financial officer to give an overview of the second quarter financial results.
And then I will discuss the current market and update you on our operation and then we'll get to your questions Tom.
Thanks, Chris.
For the second quarter of 2020, net sales were $130.3 million.
And diluted earnings were one dollar and five cents per share.
For the comparable prior year period, net sales were $96.3 million and diluted earnings were 35 cents per share.
For the first six months of 2020.
Net sales were $253.9 million and diluted earnings were $1.91 cents per share.
For the corresponding period in 2019.
Net sales were $210.4 million and diluted earnings were one dollar and nine cents per share.
The 35% increase in the second quarter sales and reduce reliance on sales promotions were the main drivers of our significantly improved earnings which tripled last year's results.
The balance sheet.
At June 27, 2020, our cash and short term investments totaled $226.6 million.
Our current ratio was 3.9 to one and we have no debt.
At June 27, 2020, stockholders' equity totaled $311.5 billion.
Which equates to a book value above $17, an 80 cents per share.
Cash provided by operations during the first half of 2020 was $78.1 million.
Cash returned to shareholders.
In the first six months of 2020, the company returned $9.3 million to its shareholders through the payment of dividends.
This quarter, our board of directors declared two dividends for our shareholders.
The first is our normal quarterly dividend, which is approximately 40% of net income. This dividend is 42 cents per share.
The second dividend declared as a special dividend of $5 per share.
Both dividends will be paid to shareholders of record as of August 14th 2020.
And our payable on August 28, 2020.
Chris will provide further commentary on the special dividend shortly.
That's the financial update for the second quarter Chris.
Thanks, Tom.
The man consumer demand, which began to surge in the latter stages of the first quarter continue to intensify in the second quarter.
The estimated unit sell through of newer products from the independent distributors to retailers increased 47% in the first half of 2020 compared to the prior year period.
The same period, the national anthem criminal background checks system background checks as adjusted by the National shooting Sports Foundation, commonly referred to as adjusted Nics.
Increased 65%.
The second quarter of 2020, adjusted Nics increased 93% from the prior year.
This staggering increase in demand appears to be attributable to a few factors.
Number one concerns about personal protection and home defense stemming from continuing cobot 19 pandemic.
Protests demonstrations and civil unrest in many cities throughout the United States.
And lastly, the call by some for the reduction in funding at authority of various law enforcement organizations.
New products.
Sales of new products represented $48 million or 21% of our firearm sales in the first half of 2020.
New product sales include only major new products that were introduced in the past two years, which include.
The Ruger five seven passable.
The LCP two in 22 on rifle the.
Wrangler revolver.
The PC charger and they are 556 test.
As a reminder, derivatives on product line extensions of mature product families are not included in our new product sales calculation, but they provide great value at all points in our distribution channel, including our immediate customers the independent wholesale distributors the retailers.
And the ultimate consumer notably in the second quarter, we launched SEC 16, new distributor exclusive and product line extensions.
Production and inventory.
Incredible started in demand outstripped, our production capability during the second quarter.
As a result, the combined inventories in our warehouses and ordered at our distributors decreased 127000 units.
Although we do not have comprehensive inventory data at the retail level.
The retail information, we gather suggests that retailer inventory of Ruger as well as most of the firearms brands was largely depleted in the second quarter I remained at very low levels.
I mentioned earlier than we had suspended hiring from March until June I'm happy to report that are higher efforts are gone very well on our current headcount has increased by over 50 employees since the end of the first quarter.
Capital expenditures.
Capital expenditures in the first half the year were $5.9 billion.
Our engineering teams are actively engaged in developing new products and I look forward to providing updates throughout 2020.
We will also invest in targeted capacity expansions for some of our product families in the greatest demand. Accordingly, we expect our total capital expenditures to approximate $20 million in 2020.
Cash short term investments and the special dividends.
Our cash and short term investments balance was $227 million at the end of June.
We decided to return $5 per share or $90 million to our shareholders through a special dividend.
We made this decision for a number of reasons.
Number one the most obvious reason, but one that shouldn't be overlooked is our cash and short term investment balance is more than we need to support our operations.
To the second reason is our cash generation, which has been consistently strong.
Despite paying out 40% of our net income do quarterly dividends and annually reinvesting an average of $30 million back into the company through capital expenditures.
Past 10 years, our cash holdings continue to grow.
Through our balance of cash and T. Bills. After this dividends paid will still leave us in a strong financial position to continue to invest in capital expenditures in support of our commitment to new product development and innovation.
Maintain our quarterly dividend.
And pursue opportunities that would further generate shareholder value.
For lastly, our longstanding capital allocation philosophy is to return capital to our shareholders.
When we accumulate more cash than we believe we can responsibly employee to generate shareholder value.
Operator may we have the first question.
And ladies and gentlemen, if you have a question at the time just dargan won on your telephone keypad to remove yourself from the Q just trying to keep our first question is from Ryan Hamilton with Morgan Stanley. Please.
Hey.
Good morning, everyone hope everyone as well.
Good morning right.
I'd like to lead off with.
Mark's question from last call you kind of asked.
How does this compares current surge kind of compare to late 2012 in 2013 I know you did talk about a little bit last quarter I'm just kind of curious if your thoughts are the same.
This quarter.
Well I do think this this surge is different than what we saw in 13.
And then doing in this industry for 30 years I saw the third to 1994 before the.
It's all weapons van took place this is probably the strongest level demand that I've seen.
One of the most significant differences is the.
How would it impact at all levels of the channel and the impact on inventory at all levels just a trip to your local done store will confirm some of the information that we talked about as far as the inventory that is available for purchase and again it was significant significant strong and appears to be.
Continuing to sustain itself as we move start out the third quarter.
Great that kinda leads into a further question I am an avid.
Hi, good there's quite a bit and check out inventories and whatnot.
One thing that I had been noticing along with.
With decreased inventories in firearms and also noticing ammo kind of been picked kind of.
Clean off the shelves at some level does that start to impact your business with all of someone buys a brand new gone or new gone and they can't get ammo for it.
We've seen that in the past you may recall several years back where we felt the sale of some of our 22 rimfire firearms are being impacted by the.
Low availability of the 22 ammo, we haven't seen that impact on firearms, yet I believe certainly the independent retail level a lot of firearms dealers.
Will ensure that for the purchase of the new fire arm. They have at least a minimal supply of ammunition in the right caliber for that firearm. So they can support there certainly that first time buyers and there are new customers coming into their stores. So we're not seeing that isn't as a negative impact.
On the firearm side.
Just at this point that we've heard.
Could you kind of walk us through the quarter the cadence how does it look compared to last year, and then May and June.
Well, we typically don't break down into the into individual quarters that the biggest thing or excuse me individual months within the quarter.
But I would tell you in April we were still feeling our way through the response to the.
Corona virus and its impact on our factories. So we spent a significant time.
In every factory working to keep our folks say.
Putting into place practices to ensure that we're checking temperatures of people coming to work were screening them we're having.
People.
If they had to travel out of town coordinate with our nursing staff to make sure. They are returning or in some cases needing to self quarantine itself isolate so that was a big adjustment in April and then.
As we work through that we had a great team in place between our our HR people Ari.
Yes, Jeff staff, and our operations leaders and of course, our nursing staff. They did a great job kind of getting through that transition, we never lost a day of production.
We had some impacts to individual lines for shift or too.
But in all cases were able to keep all of our factories open and operating so that was the biggest thing is that change as that cadence change the demand with solid throughout but what we really saw was we unfortunately, we got used to dealing with covert 19, and our practices and procedures really solidified and.
Yes, we were able though to become much more of a routine even though we had implemented those procedures in place to keep our folks safe in the factors.
That's great you guys are fantastic operators.
Could you talk a little bit about how.
What the ships are looking like.
Different plants.
Well all the factories are trying to maximize their particular product lines. It's it's not always a question of guess running three shifts certainly some areas run multiple shift into the weekend.
What we call four or five and six ships, where you're running.
312 hour days as straddle the weekend on certain lines a lot depends on the machinery in place and then as we noted in some lines, we have the ability to move some.
Some equipment to rapidly supports on expansion and our folks or become very very skilled at that and they are working very hard to keep up with demand as best we can.
Sounds good in the last one for me.
Any commodity inflation of note.
Not that we've seen.
One of the benefits of our strong balance sheet is our ability to maintain a good supply the raw materials, we need to run our businesses. So we really haven't seen anything we watch very closely.
We certainly look at economic indicators like installation like commodity pricing, but to date it hasn't impacted.
Our operations.
Sounds good I'll get back in line. Thank you very much.
Thank you so much and how we lined out maybe some gentlemen to ask a question just press Star then one to getting the Kim. Our next question is from Mark Smith with Lake Street Capital. Please go ahead.
Good morning, guys.
First question for me wanted to talk a little bit about production levels.
Can you guys get back to this 500000 or so units on a quarterly basis.
And maybe talk about production why it ran at lower levels. These kind of peak historical levels given the strong demand in Q2.
Well when you when you talk peak historical levels, when you're talking about Ruger gone back some number of years a lot of that was concentrated in a few product lines.
Back at that time, probably the LCP and 10 20 to come come most of mine.
Our operations team is very skilled at reconfigure our product lines moving equipment around to support.
First products, we make and so as a combination of.
Trying to move equipment to support where the demand is and in this case, we're seeing demand across across the board and strong demand and everything from 10, 20, twos and hunting rifles, all the way through our five classics and.
Pistol categories.
So you're trying to support those lines and then the biggest factor is we're very cautious in terms of.
Staffing.
During this pandemic one of the things that we obviously focused on of the health and safety of our employees and for that reason as we noted we didnt higher from March to June we turn that back on doing very well as our with our hiring efforts.
But that was that was.
A known constraint that we made as a management team to keep our focus I'll keep our folks say, we did a fantastic job with that we're still doing a fantastic job with it but bringing new people into the factory and then training them and as you would expect training people in a factory environment within a manufacturing cell.
Well were engaged one piece flow of products.
There's a lot of.
I will say hands on and over the shoulder communication to get into associate up to speed. So we're using some fairly novel training techniques doing some things in the classroom of course, but then also using headsets and microphones to train new associates audience.
Audience, new staff position and candidly our approach there likely limited our ability to increase production rapidly in Q2, but that was a conscious decision at one that frankly, I'm very satisfied with and proud that we put the safety of our employees first and foremost.
Could that that makes sense.
Talked about Chris I think in your.
In your commentary a little bit about hiring 50, new employees I think that was since you ended the quarter. If you looked at today production versus maybe mid Q2 any idea on kind of a percentage increase of where you're adding kind of your capacity opportunity here.
Well, we really don't.
Close those type of figures, but those folks are have started to make.
A meaningful contribution and our ops leaders have a very defined and good looking plan in front of them to work on.
Achieving a production needed to support demand and we're going to continue to do that and I think we're in a very good place.
Okay.
And then just turning to market share and competition.
You've talked a little bit about moving machinery and stuff how much you guys able today to focus on high demand products and calibers and then also you brought up hunting firearms, what's kind of your outlook as you look at more historical kind of hunting rifles versus pure self defense firearms, especially as we move.
Moving to the fall hunting season.
I guess, maybe last question first about hunting the hunting category, we've been pleasantly surprised.
Lee.
We're seeing a strong interest in hunting the whole field to Fork movement. If you will is strong and we think that's part of the what we're seeing as far as the attention to our in our case or bolt-action rifle line, which cuts across both the hawkeye's, but predominantly our American center-fire.
Rifles, and again very strong.
Say, the micro trends that we see as well as the macro within society.
But again, it's been strong demand across the board, we do as we talked about moving people and moving equipment.
Some lines are easier to move than others, and but people have been very flexible are again or ops leaders have been very good about we've actually idled a few lines, while we move those people to help us with product more in demand.
And that's been very successful at the local level and I think will continue to pay dividends are our leaders and and our associates are all very flexible we've got a good team in place and.
And.
Whatever challenge, we throw it throw at them they rise up and they succeed.
Perfect.
Do you guys talked a little bit about raw materials already but.
Two part question anything that you are seen in gross profit was really strong gross profit margins during the quarter and headwinds or potential headwinds that you see there and then also on your selling expense running at very low levels.
How long do you think you can kind of maintain selling these lower levels.
Given the strong demand and I assume the fact, it's really just don't need to be promotional to move some of these firearms today.
Well, that's a big factor for sure I mean, the promotional environment, you'll recall, we've talked about the the.
January or show season.
Promotional programs that we put in place along with many others in the industry.
And we also have in past years, we've put in place interim programs.
That would kick off in April or May some in September and right now we're not running any of those programs. So we still got a little bit to fulfill on some of the programs kicked off in January but very small amount.
But that's a big impact and the fact that we're not having to run any of those programs right now I'll leave some more stability in pricing throughout the marketplace.
Ruger products as well as.
I think you're so you're going to see that impact on gross margin. So the longer we stay in in that.
Decreased promotional environment.
The more of a positive impact it's going to have an gross margin.
Excellent. Thank you guys.
Thank you.
Ladies and gentlemen, you have a question.
Then one to get into Kim.
Alright, any part of your questions Nicky I would like to turn the call back to Cook Keloid pointless final relax.
Thank you operator.
Bear with me just a moment.
I would like to again, thanks are 1600 employees for their hard work and dedication during the difficult times on behalf of all of US Ruger I also want to thank all the first responders nurses doctors and other emergency medical personnel, who continue to go into harm's way to fight. This pandemic can help our fellow on there.
To our most indeed.
Thank you for attending our conference call and for your continued interest in Bruegger, we look forward to discussing our third quarter results in October stay safe.
And will that ladies and gentlemen, we thank you for participating in today's program. You may know disconnect haven't made day.
[noise].