Yahoo Finance Sturm, Ruger & Company, Inc. (NYSE:RGR) Q1 2024 Earnings Call Transcript
Sturm, Ruger & Company, Inc. (NYSE:RGR) Q1 2024 Earnings Call Transcript May 8, 2024
Sturm, Ruger & Company, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by, and welcome to Sturm, Ruger's First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the call over to Chris Killoy, President and CEO. Please go ahead.
Christopher Killoy: Good morning, and welcome to Sturm, Ruger & Company's first quarter 2024 conference call. I'll ask Kevin Reid, our General Counsel, to read the caution on forward-looking statements. Tom Dineen, our Chief Financial Officer, will then give an overview of the first quarter 2024 financial results. And then I will discuss our operations, including our recent reduction in force and profitability improvement plan and the market. After that, we'll get to your questions. Kevin?
Kevin Reid: Thanks, Chris. As always, we 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. It 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 as contained from time to time in the company's SEC filings, included but not limited to the company's reports on Form 10-K for the year ended December 31, 2023, and of course on the Form 10-Q for the first quarter of 2024, which we filed last night.
Copy of these documents may be obtained by contacting the company or the SEC or on the company website, ruger.com/corporate or of course 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 31, 2023 and our Form 10-Q for the first quarter of 2024, both of which are posted to our website. Furthermore, the company disclaims all responsibility to update forward-looking statements. Chris?
Christopher Killoy: Thank you, Kevin. Now Tom will discuss the company's first quarter 2024 results. Tom?
Thomas Dineen: Thanks, Chris. For 2024, net sales were $136.8 million and diluted earnings were $0.40 per share. For the corresponding period in 2023, net sales were $149.5 million and diluted earnings were $0.81 per share. Our profitability declined in the first quarter of 2024 from the first quarter of 2023, as our gross margin decreased from 26% to 21%. The lower margin was driven by a decrease in sales and production, a product mix shift to our products with relatively lower margins that remain in relatively stronger demand, unfavorable deleveraging of fixed costs resulting from the decreased production in sales and inflationary cost increases in materials, commodities, services, wages, energy, fuel and transportation. In the first quarter of 2024, we implemented a reduction in force that impacted about 80 of our employees and resulted in a severance expense of $1.5 million.
This charge reduced earnings per share by $0.07. Chris will provide further commentary on this action and the related profitability improvement plan during his remarks. At March 30, 2024, our cash and short-term investments totaled $115 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 March 30, 2024, our current ratio was 5.2 to 1 and we had no debt. 5.2 is among our highest current ratios in recent history. Stockholders' equity was $332 million which equates to a book value of $19.08 per share, of which $6.63 was cash and short-term investments. In the first quarter of 2024, we generated $7.3 million of cash from operations.
We reinvested 1.8 million of that back into the company in the form of capital expenditures. We expect our 2024 capital expenditures will total approximately $15 million related to some exciting new product introductions, upgrades to our manufacturing equipment and improvements to our facilities. In the first quarter of 2024, we returned $7.3 million to our shareholders through the payment of $4.1 million of quarterly dividends and the repurchase of 75,000 shares of our common stock in the open market at an average price of $42.89 per share for a total of $3.2 million. Our Board of Directors declared a $0.16 per share quarterly dividend for shareholders of record as of May 20, 2024, payable on June 7, 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. That's the financial update for the first quarter. Chris?
Christopher Killoy: Thanks, Tom. During the first quarter, we implemented a profitability improvement plan to ensure our long-term success and continued leadership in the firearms market. We restructured ourselves to better align and streamline some of our key functions of our organization; manufacturing, new product development, engineering and customer and product service. By streamlining our workforce, we are better positioned to allocate resources and focus on our core strengths and strategic priorities and achieve greater efficiency and productivity. As part of this restructuring, we made some difficult decisions and undertook a reduction in force that impacted [indiscernible] given strong demand for many of our products and the skill sets of the folks involved, approximately half of those impacted were able to be reassigned to direct manufacturing positions.
This action resulted in the severance expense of $1.5 million in the first quarter and will result in annualized savings of approximately $9 million. In addition to the reduction in force, we identified opportunities for cost reduction and cost elimination in virtually every facet of the company. We expect to realize the benefit of some of these initiatives as quickly as the second quarter, while others will take more time to materialize. It took a lot of hard work, analysis, collaboration and creativity to pull this plan together and we'll keep working hard to see it to fruition. Throughout this process, we were guided by our core values of integrity, respect, innovation and teamwork and we will continue to abide by them as we pursue additional opportunities to consolidate functions and reduce or eliminate expenses wherever possible.
Although the overall firearms market declined in the first quarter, demand for several of our product families remained strong, including many of our recently introduced products. The 75th anniversary Mark IV Target pistol, 75th anniversary 10/22 rifles, 75th anniversary LCP MAX pistol, the American Rifle Generation II family of rifles, the Mini-14 Tactical with side-folding stock and the LC Carbine chambered in .45 Auto. This drove our sales increase in the fourth quarter and generated strong distributor sell-through of our products to retail. The estimated unit sell-through of our products from the independent distributors to retailers in the first quarter of 2024 increased 1% compared to the prior year period. Next background checks, as adjusted by the National Shooting Sports Foundation decreased 4% from the first quarter of 2023.
Our prioritization of developing exciting and innovative new products continues to pay-off. New product sales, which include only major new products that were introduced in the past two years, totaled $42 million or 32% of firearms sales in the first quarter of 2024. This is our second highest quarterly new product sales in recent memory, only slightly below the second quarter of 2021, which is a record year for us. In conjunction with our profitability improvement plan, we shifted resources and increased production to capitalize on the opportunities that this strong demand offers and increased our production from the fourth quarter. The strong consumer demand for our products resulted in a combined reduction of over 80,000 units in our finished goods inventory and the inventory of our products at distributors during the first quarter.
Over the past two quarters, this inventory -- this combined inventory has dropped over 160,000 units and now sits at the lowest in advance since the first quarter of 2022 when inventories were still being replenished after the surge of demand that started in 2020. Simply said, we continually adjust our production levels to conform with demand. As such, we plan on increasing our production again in the second quarter to begin to replace those inventories, especially for the new products I mentioned earlier. Increased production will help us leverage our fixed costs and favorably impact our margins. The American Rifle Generation II family of rifles has been extraordinarily well received and has quickly become one of our most sought after product lines.
Since this new platform was launched in December, we've introduced 47 SKUs, including the standard ranch and premier models. We are excited to further broaden the American Rifle Gen II offerings with introductions of several additional new models planned in 2024. Those were the highlights of the first quarter of 2024. Operator, may we have the first question.
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