Q4 2021 Sturm Ruger & Company Inc Earnings Call
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Good day, and thank you for standing by and welcome to the fourth quarter 2021, Sturm Ruger earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
The conference over to speak today, Chris Cooley, Chief Executive Officer. Please go ahead.
Good morning, and welcome to the Sturm Ruger <unk> company year end 2021 conference call.
I'd like to ask Kevin Reid, our general counsel to read the caution on forward looking statements then Tom Dineen, our Chief Financial Officer will give an overview of the fourth quarter and 2021 financial results and then I will discuss our operations and the state of the market.
After that we will get to your questions Kevin.
Thanks, Chris we want to remind everyone that statements made in the course of this meeting that state the companys or managements intentions hopes beliefs expectations or predictions of the future are forward looking statements.
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 SEC filings, including not limited to the company's reports on Form 10-K for the year ended December 30 <unk>.
2021, which of course, we filed last night.
And the Form 10-Q for the first second and third quarters of 2021 Comparatives.
Copies of these documents may be obtained by contacting the company for the SEC or on the company website at <unk> Dot Com <unk> corporate or of course at the SEC website at SEC Gov. We do reference non-GAAP EBITDA. Please note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found in our Form 10-K for the year ended December 30.
<unk> 2021, and our forms 10-Q for the first three quarters of 2021, which also are posted to our website. Furthermore, the company disclaims all responsibility to update forward looking statements Chris.
Thanks, Kevin now Tom will discuss the company's 2021 results.
Thanks, Chris.
For 2021, net sales were $737 million.
And diluted earnings were $8 78 per share.
For 2020, net sales were $568 $9 million.
Diluted earnings were $5 <unk> per share.
The substantial increase in profitability in 2021 compared to 2020 is attributable to the increase in sales and production there.
The resulting favorable leveraging of fixed costs, including depreciation engineering and other indirect labor expenses.
Reduced sales promotional activities in.
And increased labor and other manufacturing efficiencies.
For the fourth quarter of 2021.
Net sales of our $168.0 million.
And diluted earnings were $2 14 per share.
For the corresponding period in 2020.
Net sales were $169 $3 million.
And diluted earnings were $1 78 per share.
Diluted earnings per share in the fourth quarter of 2021 were increased by 18.
Due to a reduction in the effective tax rate for the year, which was recognized in the quarter.
At December 31, 2021, our cash and short term investments.
Which are invested in U S T bills totaled $221 million.
Our current ratio was $4 three to one and we had no debt.
Our cash laden debt free balance sheet will allow us to pursue acquisitions and other capital opportunities that may emerge.
At December 31, 2021.
Stockholders' equity was $363 $7 million, which.
<unk> two of book value of $20 67 per share.
Of which $12 56 per share was cash and short term investments.
In 2021, we generated $172 million of cash from operations.
We reinvested $29 million of that back into the company in the form of capital expenditures primarily related to new products.
We estimate that 2022 capital expenditures will be approximately $20 million.
Predominantly related to new product development.
Our ability to shift manufacturing of equipment between cells and between facilities improves overall utilization and allows for reduced capital investment.
In 2021, we've returned $59 million to our shareholders through the payment of dividends.
Our board of directors declared an <unk> 86 per share quarterly dividend for shareholders of record as of March 11th 2022 payable on March 25 2022.
As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies quarter to quarter.
That's the financial update for 2021, Chris.
Thanks, Tom.
21 was a great year for Ruger, we entered the year with virtually no finished goods inventory. So all of the firearms sold in 2021 had to be manufactured in 2021 or 28% increase in sales would not have been possible without the 30% increase in production at our factories.
And this 30% increase was achieved with the manpower increase of less than 10%.
These manufacturing efficiencies gains drove a 109% return on net operating assets for the year.
Which is a remarkable feat.
Our dedicated workforce accomplished this despite the highly publicized challenges of tight labor markets.
<unk> and supply chain issues, and COVID-19 obstacles that we experienced throughout the year.
Following a 44% increase in 2020.
The sell through of our products from distributors to retailers increased again in 2021. This time by 4%. Despite the 12% reduction in the national instant criminal background check system background checks as adjusted by the National shooting Sports Foundation.
The increase in the sell through of our products compared favorably to the decrease in adjusted mix background checks in 2021.
And may be attributable to strong consumer demand for our products.
Increased availability of our products at the distributors and at retail as a result of our increased production.
And the introduction of popular new products.
Led by the award winning Ruger 57 pistol, the Max nine pistol and the LCP Max pistol or new product sales in 2021 represented $155 million or 22% of firearm sales an increase of $45 million from $111 million.
Or 22% of firearm sales in 2020.
As a reminder, derivatives and product line extensions of mature product families are not included in our new product sales calculations.
We ended 2021 on a high note as we ship the first Ruger made Marlin lever action rifles.
The model $80 95, SPL chambered in $45 70 government in December .
The past year, our team completed a thorough design and production review of the 18 95 focused on ensuring the highest quality accuracy and performance standards.
Being a longtime Marlin fan I knew that we needed to take our time and make sure that our reintroduction was nothing short of perfect.
From the quality of the firearm to clear ways for consumers to differentiate Ruger made Marlins, we focused on getting every detail right.
I look forward to reintroducing many more Marlins in 2022 and in the years to come.
Long live the lever gun.
Our finished goods inventory remains significantly below pre COVID-19 pandemic levels <unk>.
Given their inventories of our products increased 125000 units in 2021.
But remain below the level needed to support rapid fulfillment of retailer demand for most products.
We have an expansive product line, which ranges from our versatile pistols to bolt action hunting rifles to our classic revolvers to Marlin lever action rifles.
This provides some stability in the volatile tile firearms market as we can reallocate our labor and machinery to prioritize the manufacturer of products that are in strong demand, while we replenish our inventories of models that appear to be an adequate supply in the distribution channel.
Our ability to reallocate resources, and our willingness to maintain appropriate levels of inventory strengthen us as demand ebbs and flows within the various diverse sectors of the industry.
I am excited as we enter 2022, we will remain disciplined and committed to our strategy of pursuing manufacturing excellence and vigorously developing innovative and exciting new products. We look forward to launching some of these new products under both the Ruger and Marlin brands in 2022.
Those are the highlights of 2021.
Operator may we have the first question.
As a reminder to ask a question you will need to press star one on your telephone until they're trying a question just press the pound key once again.
Wonderful questions, we'll open for questions.
Our first question comes from the line of Ryan Hamilton from Morgan Dempsey Capital you may begin.
Hey, good morning, guys.
On a day to record.
Our annual record earnings.
Hi, Ryan.
David right away you commented last quarter about ammo availability being an issue.
Any comments on that front, what youre seeing what youre hearing.
Ryan Good question, we are seeing better availability of ammunition, particularly in some of the core calibers like nine millimeter and 505, six so I think that that is improving.
I know the ammunition companies have all ramped up significantly and so I think that is.
<unk> is helping getting stocks, a little closer back to normal levels.
Great.
Along those lines you touched on mix checks in your release do you think that product availability might be impacting.
On availability I guess, you could call it is that impacting those numbers at all.
I think that could have been an impact earlier.
In 2021.
Certainly 2020, but I don't think Thats, an impact now I think by and large we're seeing retail shelves.
Starting to with exception of certain categories in particular for Ruger products like our revolvers Hawkeye rifles things of that nature, which is still in very tight supply. We are seeing a return to more normal inventory at retail, but we still got a lot of outages that we're trying to we're trying to get filled for our customers.
Greg.
I'm Marilyn.
Great job on the release on that without getting too specific what does the margin profile look like.
For this rifle compared to some of your more legacy.
You see models.
Well right now of course, it's in the ramp stage, we're still growing that line, but over time, we expect it will be very similar to our other long gun lines produced.
And the made in factory, so we're very comfortable with where it started and where it's going.
Okay, Great and then you touched on the commodity labor supply chain stuff.
Anything of note there on the commodities.
No.
Yes, certainly we are seeing inflation across the board.
As our most manufacturers however, our supply chain team supply chain team has done a great job.
Working with our suppliers, we have taken several price increases over the past 18 months.
But I think we're seeing our ability and our strong balance sheet to buy buy forward on raw materials helps us both in terms of some of that protecting against inflation as well as making sure we have available steel aluminum et cetera.
Weather any downturn from a supply standpoint.
I'm sure. It helps that you manufacture everything in the U S and source most of that stuff. So that's great.
Any price increases scheduled out for the next six to nine months.
Not anticipated.
Ends on if we see.
Increased inflation on certain commodities that could change, but right now we did just take a.
3% price increase pretty much across the board on January one.
Great and then on the.
I always enjoy that you touch on new product sales.
You break that out by the fourth quarter at all.
Well typically we don't break that out too much in.
In that greater detail Ryan below the new product category I believe it was.
For the year was 22%.
I think it was pretty close to that for fourth quarter as well.
Okay great.
Last one for me and I'll jump back in line here any comments on the Remington settlement.
No Brian .
Brian is as you likely know.
We're not involved in that case and I think it's important to recognize what the settlement was and what it wasn't.
There was no finding of liability there the case never went to a jewelry and this was a decision by the insurance companies to settle so I really can't speak to their thinking on on the matter.
My thoughts exactly.
Thanks, again, guys keep up the good work.
Thanks Rod.
Our next question will come from the line.
Well nishu.
Capital you may begin.
Thanks, very much and good morning.
Just a question on gross margins.
<unk> had some nice sequential progress in gross margins and given.
Thank you touched on this a little bit, but given some of the headwinds in terms of raw materials and shipping I Wonder if you could just maybe give us a little granularity on what drove such.
Gross margins 37, 7% I think it was a mix shift or new products something else going on there. Thanks.
Well when you get that volume, you're covering a lot of the fixed fixed overhead and <unk>.
That's one of the biggest contributors are new products were a big factor things like the Ruger 57 pistol, the Max nine and the LCP Max.
All very solid performers for us so I think that.
Beyond that the level of <unk>.
Price increases we took.
Last last year, and then going into the fourth quarter helped us some as well, but I think there was a.
Lots of good things happening in terms of driving that gross margin.
Most of which really.
I attribute to the good work of our folks in the factory they did a phenomenal job.
It's not just the big factors like price increases in commodity costs, it's really their effort on continuous improvement daily kaizen.
Taking cost out and taking waste out has really been a big factor in those gross margin numbers.
Great, Okay, and maybe just one quick follow up.
I think on the prior conference call.
You guys have chatted about.
<unk> North Carolina facility and some of the supply chain things Youre doing I Wonder if you could just give us an update on how thats progressing and where you are there. Thanks.
Yes, it's a maintenance facility in North Carolina has been the.
Had the lead on our Marlin production, although we've had folks from all three of our locations are assisting in that but thats, where we located the marlin assets and the $80 95 is built right. There in our main factory in in May and we recently.
Leased another facility nearby about the same square footage essentially doubling our square footage down there in North Carolina and that gives us opportunity to move our finished goods over there move our call center, there and it'll be allow us to put additional production lines in that facility and so I think.
Bodes well for for Ruger, and especially with Marlin, We've got the $80 94 coming the $3 36.
And then some of the other product line expansions and new product initiatives, we have.
That'll be that'll be a great facility for us and it's a great workforce as are all our locations, but I think that'll that'll pay dividends in the future.
Great, Thanks, very much and the solid quarter.
Thanks Rommel.
Once again Thats star one for questions. Our next question from Atlanta, Mark Smith from Lake Street Capital you May begin.
Hey, good morning, guys.
Good morning, Mark.
First question for me just wanted to talk about production a bit.
Guys in Q4.
Maybe take anymore holiday time off or where their COVID-19 issues that impacted the quarter, just looking at production coming down a little bit sequentially.
Well I mean part of that is certainly COVID-19 was a factor in Q4.
No doubt about it but we also made there were a couple of lines that we adjust our SIOP rates our sales inventory operations planning, we tend to think about our product lines in terms of units per day, and while a couple of new product lines were ramping up there were one or two legacy lines that we did throttle back a little bit on production partly to manage labor.
And just make sure we weren't going to oversupply anything going into the market.
Okay.
It leads to the next question.
Orders and pricing in our view still looks really pretty solid.
Can you talk about what youre seeing in regards to demand today.
Well, we try to focus less on the incoming order rates that we do on what's outgoing from our distributors. We have good visibility into what our distributors are shipping to retailers and that's the barometer we use.
For our planning purposes watching what they're shipping to retailers that still looks good.
It's not where it was say a year ago at this time, but its very solid and its across the board. We're seeing good strength from our distributor sell through as we referred to it they are distributor sales.
And I think as we go forward, we'll continue to watch that we adjust our production.
On a every two weeks just to make sure we're trying to get distributors and retailers, what they need and at the same time, making sure. We don't produce too many things that they're not looking for the diversity of our product line, which we touched on earlier.
Really helps us in that regard because we've got some some categories, where we frankly under delivered over the past year and a half things like our double action in single action revolvers that we need to focus more on.
We've also got things like our legacy product lines like our Hawkeye rifles number one rifles things of that nature again, not giant needle movers, but products that are much in demand that I get E mails from consumers looking for those guns all the time so it.
It gives us an opportunity to fill in some of those holes in the inventory at retail and wholesale level.
Yes.
My next question.
As we watch these shipments from distributors to retail as well as some of the incoming orders.
How should we watch from the outside to make sure orders don't get too high the inventory levels are at a healthy place. So we don't see an overbuild similar to what we saw in <unk>.
<unk> late 2016 2017.
Yeah. Good good point again, all of our orders that we received from our wholesalers are noncancelable orders, but that doesn't mean that we just <unk>.
Regardless of what the situation is from an inventory standpoint, we watch very closely what they have in inventory we watch what they are selling and we keep an eye on that and that feeds into how we how we run our business. So even though they are noncancelable orders on our books doesn't mean, we just.
Disregard.
What's going on in the marketplace and what's going on with their inventories to try to keep keep them healthy and keep their retailers healthy.
That's great.
The last one for me, we've talked a lot about new products.
And the.
Pure number of new products sold has been really solid.
Can you give any insight into kind of how you view that metric as we move into 2022.
With Marlin would you expect that to skew higher or do you have some products that are maybe rolling off kind of a two year I think wrangler, maybe rolls off and some other products.
In your outlook for new products as far as revenue coming from that.
Yeah. Good point good question, Marc I mean wrangler has rolled off as has.
In this quarter, the Ruger 57 will roll off so I mean, those are those are things because of our strict metric that we use that two year horizon, even though those sales remained strong and great profit generators, we tip, we don't count it after two years. So we've got some new things coming and I'm sure there'll be contributing.
So that'll be the biggest thing is what new products are in the hopper that obviously, we're not going to talk about today, but there are some good things coming and we're excited about our engineers are working very hard with that.
Some dedicated teams in all three facilities.
Really working on some cool things to bring to market.
Excellent. Thank you guys.
Thanks Mark.
Once again Thats star one for questions one more for questions.
And I'm not showing any further questions in the queue I'd like to turn the call back over to Chris for any closing remarks.
Thanks, operator in closing I would like to thank all of you for your continued interest in Ruger and I would like to thank our loyal customers and our over 1900 hard working members of the Ruger team, who design manufacture and sell rugged reliable firearms every day in our American factories.
I hope you will be able to join us at our virtual 2022 annual meeting on Monday May nine further details of that meeting will become available in early April .
Thanks once again.
This concludes today's conference call. Thank you for participating.
You may now disconnect everyone have a great day.
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