Q2 2024 Sturm Ruger & Company Inc Earnings Call
Operator: Good day, and thank you for standing by.
Operator: Thomas Dineen, Mark Smith, Rommel Dionisio, Kevin Reid, Christopher Killoy, Alex Sturnieks, Thomas Dineen, Rommel Dionisio, Kevin Reid, Christopher Killoy, Alex Sturnieks, Sturm Ruger & Company Inc Thomas Dineen, Mark Smith, Rommel Dionisio, Kevin Reid, Rommel Dionisio, Christopher Killoy, Alex Sturnieks, Sturm Ruger & Company Inc, Good day, and thank you for standing by. Welcome to the Sturm Ruger Earnings Conference Call.
Operator: Welcome to the Sturm Ruger earnings conference call. At this time, our participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.
Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 once again. I would now like to hand the conference over to your first speaker today, Chris Killoy, President and CEO. Please go ahead.
Operator: To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again.
Operator: Please be advised that today's conference is being recorded.
Christopher Killoy: I will now like to hand a conference over to your first speaker today, Chris Killoy, President and CEO. Please go ahead.
Christopher J. Killoy: I'll ask Patricia Shepard, our Deputy General Counsel, to read the Caution on Forward-Looking Statement. Tom Dineen, our Chief Financial Officer, will then give an overview of the second quarter 2024 financial results, and then I will discuss our operations and the market. After that, we'll get to your questions.
Christopher Killoy: Good morning and welcome to Sturm Ruger & Company second quarter 2024 conference call.
Patricia Shepard: I'll ask Patricia Shepard, our Deputy General Counsel, to read the caution on the foreign looking statements.
Thomas Dineen: Tom Dineen, our Chief Financial Officer, will then give an overview of the second quarter 2024 financial results.
Christopher Killoy: And then I will discuss our operations and the market.
Christopher Killoy: After that, we'll get to your questions.
Patricia Shepard: Thanks, Chris. I just want to remind everyone that statements made in the course of this meeting that state the companies or management's intentions, hopes, beliefs, expectations, or predictions of the future are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such poor looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the poor looking statements is contained from time to time in the company's SEC filings, including that not limited to the company's report on form 10-K to the year end of December 31st, 2023.
Patricia Shepard: I just want to remind everyone that statements made in the course of this meeting that state the company's or management's intentions, hopes, beliefs, expectations, or predictions of the future are forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements. Copies of these documents may be obtained by contacting the company or the SEC or on the company's website at ruger.com slash corporate or the SEC's website at sec.gov.
Patricia Shepard: And, of course, on the form 10-Q for the second quarter of 2024, which we filed last night. Copy to these documents may be obtained by contacting the company or the SEC or on the company's website at rooger.com slash corporate or the SEC website at sec.gov.
Patricia Shepard: 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, 2023. And our Form 10-Q for the second quarter of 2024, both of which are also posted to our website.
Patricia Shepard: 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 31, 2023, and our Form 10-Q for the second quarter of 2024, both of which are also posted to our website. Furthermore, the company disclaims all responsibility to update for a look-forward.
Patricia Shepard: Furthermore, the company displays all responsibility to update for the new statement.
Thomas Dineen: Thank you, Pat. Now, Tom will discuss the company's second quarter 2020 for results.
Thomas Dineen: Thanks, Chris. For the second quarter of 2024, net sales are $130.28 million, and diluted earnings were $0.47 per share. For the corresponding period in 2023, net sales were $142.8 million and diluted earnings were $0.91 per share. For the sixth month ended June 29th, 2024, net sales were $267.6 million and diluted earnings were $0.87 per share. For the corresponding period in 2023, net sales were $292.3 million and diluted earnings were $1.72 per share.
Thomas A. Dineen: For the corresponding period in 2023, net sales were $142.8 million, and diluted earnings were $0.91 per share. Net sales were $292.3 million, and diluted earnings were $1.72 per share.
Thomas Dineen: Our second quarter profitability improved from the first quarter despite our reduction in sales as we increased production 18%, notwithstanding the reduction in head count resulting from the reduction in force we implemented at the end of the first quarter. At June 29th, 2024, our cash and short-term investments totaled $106 million. Our short-term investments are invested in the United States Treasury bills and in a money market fund that invests exclusively in the United States Treasury instruments which mature within one year. At June 29th, 2024, our current ratio was 4.81, and we had no debt. Stockholders' equity was $322 million, which equates to a book value of $18.90 per share, of which $6.21 was cash and short-term investments.
Thomas Dineen: In the first half of 2024, we generated $26.1 million of cash from operations. We re-invested $10.4 million of that back into the company in the form of capital expenditures. We expect our 2024 capital expenditures will total approximately $20 million related to some exciting new product introductions, upgrades to our manufacturing equipment, and improvements to our facilities.
Thomas A. Dineen: In the first half of 2024, we generated $26.1 million of cash from operations, and we reinvested $10.4 million of that back into the company in the form of capital expenditures. We expect our 2024 capital expenditures will total approximately $20 million related to some exciting new product introductions and the repurchase of 478,000 shares of our common stock in the open market at an average price of $42.41 per share for a total of $20.3 million.
Thomas Dineen: In the first half of 2024, we returned $27.1 million to our shareholders through the payment of $6.28 million of quarterly dividends and the repurchase of $478,000 shares of our common stock in the open market at an average price of $42.40 per share for a total of $20.3 million. Since the end of the second quarter, we repurchased an additional 157,000 shares of our common stock at an average price of $41.27 per share for a total of $6.5 million. Thus far in 2024, we returned $26.7 million to our shareholders by repurchasing $634,000 shares, more than 3% of the shares outstanding as of the beginning of the year, at an average price of $42.12 per share.
Thomas A. Dineen: Since the end of the second quarter, we've repurchased an additional 157,000 shares of our common stock at an average price of $41.27 per share for a total of $6.5 million. Thus far in 2024, we have returned $26.7 million to our shareholders by repurchasing 634,000 shares, more than 3% of the shares outstanding as of the beginning of the year, at an average price of $42.12 per share. As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies from quarter to quarter.
Thomas Dineen: Our current cash balance remains above $100 million.
Thomas Dineen: Our Board of Directors declared a 19 cent per share quarterly dividend for shareholders' record as of August 15, 2024, payable on August 30, 2024. As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies quarter to quarter. Our variable dividend strategy, coupled with our strong debt-free balance sheet, allows us to continually and consistently provide returns to our shareholders without sacrificing our ability to capitalize on opportunities that emerge.
Thomas Dineen: That's the financial update for the second quarter.
Christopher Killoy: Chris? Thanks, Tom. We were pleased with the consistency of demand for many of our products in the second quarter, despite the declining consumer demand in the firearms markets in last year. On the strength of these products, many of which were introduced last year. The estimated units fell through our products from our independent distributors to retailers increased 1% in both the second quarter and the first half of 2024, compared to the prior year. For the same periods, Nick's background checks, as adjusted by the National Shooting Sports Foundation, decreased 8% and 6% respectively. Recently introduced products that drove distributor self-rule include the American Rifle Generation 2 family of rifles, the Marlin 1895 Dark Series lever action rifles, Marlin 336 lever action rifles, and the LC Car being chambered in 4500.
Christopher J. Killoy: On the strength of these products, many of which were introduced last year, the estimated unit sell-through of our products from our independent distributors to retailers increased 1% in both the second quarter and the first half of 2024 compared to the prior year. Marlin 336 Lever Action Rifles, and the LC Carbine chambered in.45 August. 13,000 units in our warehouses and 89,000 units at the distributor, especially for the new products just mentioned.
Christopher Killoy: 14 rifle with side fold and stock also help drive those sales. Strong pull-through of demand can inventors of Ruger products in the distribution channel at healthy levels. And for our products in stronger demand, the self-rule outpaced production during the first half of the year. Consequently, compared to this final last year, our Finnish goods inventory and the distributor's Finnish goods inventors of Ruger products have decreased over 100,000 units. 13,000 units in hour warehouses and 89,000 units at the distributors. As such, we plan on continuing to increase our production in the second half of the year to begin to replenish these inventories, especially for the new products just mentioned.
Christopher Killoy: Increased production will help us leverage our fixed costs and favorably impact our margins.
Christopher J. Killoy: Increased production will help us leverage our fixed costs and favorably impact our margins. New product sales totaled $80 million, or 31% of firearm sales in the first half of 2024. These new product sales include only major new products that were introduced in the past two years.
Christopher Killoy: Designing engineering and manufacturing innovative new products remains our primary. New product sales total $80 million or 31% of firearm sales in the first half of 2024. New product sales include only major new products that were introduced in the past two years. In addition, we add dozens of line extensions and distributors' exclusive firearms to our offerings every year.
Christopher J. Killoy: In addition, we add dozens of line expansions and distributor-exclusive firearms to our offerings every year. Earlier this year, we reorganized some aspects of our business and implemented a reduction in force to achieve greater efficiency, productivity, and flexibility throughout our organization. We expect further improvements from the initiatives we are currently pursuing, and we continue to look for additional opportunities to reduce or eliminate inefficiencies in every part of our business. Discipline Pricing and Promotion Strategy may not always benefit current period sales and profitability.
Christopher Killoy: We look forward to launching another exciting new product and more products rumors in the second half of this year.
Christopher Killoy: Earlier this year, we reorganized some aspects of our business and implemented a reduction in force to achieve greater efficiency, productivity, and flexibility throughout our organization. We are starting to realize the benefits of these actions. Despite the reduction in headcount, second quarter production increased 18% from the first quarter. We expect further improvements from the initiatives we are currently pursuing, and we continue to look for additional opportunities to reduce or eliminate efficiencies in every part of our business. We remain focused on the long-term goal of creating shareholder value. Our discipline pricing and promotion strategy may not always benefit current period sales and profitability, but instead enhance our long-term performance and promotes consistency throughout the distribution channel.
Christopher Killoy: Allowing both independent distributors and retailers to confidently invest in our inventory is essential to rumors long-term success and leadership in the vault of firearms market. The industry has recognized many of our innovative products from the wars and accolades in 2024, including the recently announced Industry Choice Awards for the lever cut of the year, the Marlin Dark Series Model 1895. Carbina of the year, the LC Carbina 45 Auto, and High Overall Rifle of the Year, the Ruger American Rifle Gen 2 Ranch.
Christopher J. Killoy: Allowing both independent distributors and retailers to confidently invest in our inventory is essential to Ruger's long-term success and leadership in the volatile firearms market. The industry has recognized many of our innovative products with awards and accolades in 2024, including the recently announced Industry Choice Award. Thank you.
Christopher Killoy: Those are the highlights of the second quarter of 2024.
Operator: Operator, then we have the first quarter. Thank you.
Operator: At this time, we will conduct the question-and-answer session. As a reminder to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again.
Operator: Please stand by while and make street.
Operator: Our first question comes from Mark Smith on Lake Street.
Mark Smith: Hey, good morning, guys. My first question is really around ASPs. As we look at the difference between ASPs on unit shipped versus those in the backlog, ASPs at very high levels, is this more so kind of Marlin lever action rifles that we're seeing in the backlog that maybe get built as we move closer into fall or anything you give us to kind of walk us through and you kind of the difference between those student numbers. Yeah, good question, Mark. What that typically is right now is heavy backlog on Marlin. We also have quite a few Ruger American Generation 2 rifles that are in there at a slightly higher price point than the versus what incoming orders may reflect, which include a lot of the 75th Anniversary rifles.
Mark Eric Smith: Hey, good morning, guys. My first question is really about ASPs. As we look at kind of the difference between ASPs on units shipped versus those in the backlog, backlog ASPs at very high levels, is this more so the kind of Marlin lever action rifles that we're seeing in the backlog that maybe get built as we move closer in the fall, or anything you can give us to kind of walk us through? And you kind of the difference between those two numbers.
Mark Smith: Okay, and as we think about units that were shipped, are we still continuing to see a strong demand on maybe some lower priced items or ones that you're shipping out over this last quarter, maybe the Super Wrangler Security 380? Is that something, or do you feel pretty good about the mix of items that were produced and shipped during the quarter? The mix is very strong; however, it is biased to some of those lower price points with those 75th anniversary guns. One of the things we talked about was we didn't engage in a lot of discounting for promotional activity to negatively impact gross margins.
Christopher J. Killoy: Okay, and as we think about units that were shipped, are we still continuing to see, you know, strong demand for maybe some lower priced items or ones that you're shipping out, you know, over this last quarter, maybe the Super Wrangler or Security 380? Is that something, or do you feel pretty good about the mix of items that were produced and shipped during the quarter?
Mark Smith: However, those 75th anniversary models, the 10.2 LCP Max, the Mark 4, 75th Commemorative, all of those were priced to sell. They were priced pretty sharply to make sure going into this market with a 75th anniversary model, you're going to build things that will go stale at some point. So you want to make sure you can move those, and that's part of our strategy, and that's a little bit of why those are in lower price to make sure that the velocity we wanted with both our wholesalers, retailers, and end users. Okay, and margins, kind of my next question is, as we think about the backlog, can maybe building and shipping some of these Marlin and other centafire rifles as we work through the next couple quarters.
Mark Eric Smith: Building and shipping some of these Marlin and other centerfire rifles as we work through the next couple of quarters. I know you guys don't give guidance around margin, but how do you feel about the impact of maybe a mixed shift on margin in the second half and also maybe seeing more benefit from some of the cuts and work that you guys did earlier this year on cutting costs?
Mark Smith: I know you guys don't give guidance around margin, but how do you feel about the impact of maybe mix shift on margin in the second half and also maybe seeing more benefit from some of the cuts and work that you guys did earlier this year on cutting costs? Yeah, I think there may be some of the mix shift. I think it's more likely margin improvements will be driven by our performance improvement in terms of some of the cost reductions and initiatives we've undertaken, as well as de-leveraging some of the fixed crop costs as we take up production now.
Christopher J. Killoy: Yeah, I think there may be some of that makeshift. But I think it's more likely margin improvements will be driven by our performance improvement in terms of some of the cost reductions and initiatives we've undertaken, as well as deleveraging some of the fixed costs as we take up production.
Mark Smith: As Tom noted, we're up. I think production was up 18% in Q2, and we expect it to be up again in the back half of the year. Okay, and I think the last question for me, just curious, Chris, if you can give kind of your outlook into demand or, or primarily, if you think about July, we haven't seen the next numbers come out yet, but we saw kind of a jump of mid-month around news and events in firearms demand. Julius, if you know any thoughts that you can give us around July demand for firearms and what you kind of heard and saw from distributors and retailers buying large, any jump that we saw related to items in the news cycle was pretty short and pretty, pretty minor to be perfectly honest.
Mark Eric Smith: Chris, if you can give kind of your outlook on demand, or primarily as we think about July, we haven't seen the NICS numbers come out yet, but we saw kind of a jump mid-month around news and events in firearm demand. Curious if, you know, any thoughts that you can give us around July demand for firearms and what you kind of heard and saw from distributors and retailers.
Mark Smith: I don't think that through much in July. July continues to be a pretty slow period when we look at overall demand at the retail level. I was just down to one of our major retailers in Alabama for their promotion this past weekend, and while we did well, what was moving was the lower price items, lower price items, hard to get items. And you know our core customer is still hurting, so I think that when the man or woman comes into the gun store and if the credit cards are maxed out, there's only so much they can put on that card and so much they can buy. And I think that's partially driving it. And again, July is a tough month historically. You know, we're back to that cyclical nature and seasonal nature of our business, and July is typically one of the toughest months, you know, for the firearms industry.
Mark Smith: Okay, and maybe I'll squeeze in one more. Just as you're out there in the industry and talking to people, is it safe to assume that you guys are not expecting a, you know, the historical big ramp as we get closer into with a presidential election of this year.
Christopher J. Killoy: Okay, and maybe I'll squeeze in one more just as... As you're out there in the industry and talking to people, is it safe to assume that you guys are not expecting a, you know, the historical big ramp as we get closer to a presidential election this year?
Mark Smith: Good question. I don't know what to expect. I mean we're ready either way. I mean our production is going to be moving forward based on what we have for new products in the pipeline. So we're going to be increasing our production regardless, and you know if there is an unexpected spike in demand, we've got inventory distributors that have inventory it's lower than it was last year at this time, which is a healthy thing, but they're still in the doors to support that. So again, we're not banking on it or planning on it, but we'll be ready for it to come.
Christopher J. Killoy: Good question. I don't know what to expect. I mean, we're ready either way. Our production is going to be moving forward based on what we have for new products in the pipeline. So we're going to be increasing our production regardless. And, you know, if there is an unexpected spike in demand, we've got inventory; distributors have inventory, too. It's lower than it was last year at this time, which is a healthy thing, but there's still inventory to support that. So again, we're not banking on it or planning on it. But we'll be ready for it to come. Excellent, thank you, guys.
Mark Smith: Excellent.
Mark Smith: Thank you, guys. Thank you.
Rommel Dionisio: Our next question comes from Romelle Dionisio at Ages Capital. Good morning, and thank you.
Rommel Dionisio: Chris, you alluded to some new product launches in the back half of the year. Certainly looking forward to that, but as you think about the timing and the cadence of new product launches, you know, difficult, challenging industry environment overall right now. This is causing you to kind of maybe have these set for a while, but as we enter, you know, as you think about 2025, do you think about slowing that down and waiting for, you know, kind of an industry bounce back, or how do you kind of think about the cadence of new product introductions here over the next few quarters?
Rommel Dionisio: Thanks, Rommel.
Christopher J. Killoy: Thanks, Rommel. Typically, we don't let that drive our new product thinking. We know we've got to have a steady stream of new products coming. Some of them are products that take, you know, several years to work through, get into the market. Others can be pretty short and quick hits. But the actual trying to time it is always difficult, and candidly, almost any new product initiative always takes longer than you'd like. So it's kind of fraught with peril if you're trying to time it too closely.
Christopher Killoy: Typically, we don't let that drive our new product thinking. We know we've got to have a steady stream of new products coming. Some of them are products that take several years to work through, get it into market. Others can be pretty short and quick hits, but the actual trying to time it is always difficult, and candidly, almost every new product initiative always takes longer than you'd like. So it's kind of fraught with peril if you're trying to time it too closely. So we're going to go as fast as we can with the new products. We've got a couple of cool things coming in the fall that we're excited about.
Christopher J. Killoy: So we're going to go as fast as we can with the new products. We've got a couple of cool things coming in the fall that we're excited about. And again, we're certainly not going to hold off on anything waiting for either a shift in the market or anything else. When it's ready, and we've got inventory, we're going to get it out there. I think most people know now that Ruger, unlike some folks, when we announce a product, we like to have it available either right at distributors or even, ideally, in retailers before the customer hears about it. So that's going to be our plan as we go forward.
Christopher Killoy: And again, we're certainly not going to hold off on anything, waiting for either a shift in the market or anything else. When it's ready and we've got inventory, we're going to get it out there.
Christopher J. Killoy: Okay, great. Thanks very much.
Christopher Killoy: I think most people know now that Ruger, Ruger. I'm like some folks; when we announce the product, we'd like to have it available either right at distributors or, even ideally, in retailers before the customer hears about it. So that's going to be our plan as we go forward.
Rommel Dionisio: Okay, great.
Rommel Dionisio: Thanks very much, Chris. Thanks, Rommel.
Operator: Thank you.
Operator: I'm showing you no further questions at this time.
Christopher Killoy: I would now like to turn it back over to Chris for closing remarks.
Christopher Killoy: You're closing. I'd like to thank all of you for a 10-year call this morning and thank our shareholders for their continued investment in our company. And most importantly, I'd like to thank our low customers and our 1,800 hard-working members of the Ruger team who designed, built, and sell Ruger, reliable firearms throughout the year.
Christopher J. Killoy: In closing, I'd like to thank all of you for attending our call this morning and thank our shareholders for their continued investment in our company. And, most importantly, I'd like to thank our loyal customers and our 1,800 hardworking members of the Ruger team who design, build, and sell rugged, reliable firearms throughout the year. Thank you.
Operator: Thank you. Thank you for your participation in today's conference.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: This does conclude the program; you may now.