Ruger Posts $14.8 Million Loss for 4th Quarter

Newport — Gun maker Sturm, Ruger & Co. posted an unusual loss during the fourth quarter, dragged down by a $41 million charge related to the termination and settlement of the company’s defined benefit pension plan that Ruger had flagged earlier would depress its bottom line.



At the same time, Ruger said gun sales were again lower in the fourth quarter than prior year levels, reflecting an industry-wide slowdown following exceptionally robust sales throughout 2012 and 2013. Firearm sales, particularly of handguns, have slowed nationally after President Obama was unable to push through new gun-control legislation.



But now, after cutting production levels almost 40 percent in the second half of last year, “demand has started to show some early indications of improvement in 2015,” Michael Fifer, chief executive of Ruger, told analysts in a recent conference call. The company has started to raise production rates for some of its products.



Responding to an inquiry about a downtick in overall employment levels at Ruger in 2014, in addition to a cut in temporary workers, Fifer said in an email that the company has “started to increase production on some lines in 2015 from their low point in 2014 and we are working on two potentially significant new product introductions out of Newport that will likely result in (an increase of) overtime and/or employment later in the year.”



As disappointing as the quarter’s results were, Ruger’s revenues and operating profit were actually better than anticipated, according to Brian Ruttenbur, an analyst who follows the company at CRT Capital Group in Connecticut.



“They beat revenues by $20 million and beat earnings by a dime,” Ruttenbur said about Ruger’s results in comparison to consensus forecasts among analysts. “They had a great quarter and things are actually improving.” Although he remains cautious as the industry rebounds from concerns last year over inventory levels and price discounting by competitors, he nonetheless is raising his 2015 revenue forecast for Ruger by nearly $100 million to $436 million.



For the quarter ended Dec. 31, Ruger reported a net loss of $14.8 million compared with net income of $26.6 million in the year-prior period. Revenues fell 33 percent to $122.6 million in the quarter.



The fourth-quarter loss marks the first red ink the Southport, Conn., company has posted since the second half of 2007, when a decline in gun sales that occurred at a time when it was also undergoing a major restructuring led Ruger to report two consecutive quarterly losses.



Excluding the fourth-quarter charge, Ruger said, it would have reported positive net income of $10.5 million. For the full 2014 year, Ruger reported revenue of $544.5 million, down 21 percent from $688.3 million in 2013.



“Demand in the first half of 2014 was much stronger than demand in the second half of 2014,” Fifer told analysts, noting Ruger shipped 400,000 fewer guns in the latter half of the year, a 33 percent decline. He said wholesalers, in turn, sold 25 percent fewer handguns to retailers during the second half, which reflected both lower demand from customers as well as difficult comparisons against “extraordinary” customer demand in 2013.



Sales were also dampened by delays in the introduction of new gun models last year. Fifer has made the introduction of new gun models a cornerstone of Ruger’s growth strategy, accounting annually for between 28 percent to 32 percent of overall revenues. But during 2014, Ruger introduced only two major new firearms, the AR-556 semi-automatic rifle and LC9s pistol, which represented only 16 percent of all firearm sales for the year, a significant drop.



In response to an analyst’s question about the fall-off in new firearm development, Fifer credited engineers with doing a good job, but added, “where we’ve come up short is on the project management side,” and the company is looking to “beef up” project management before hiring additional engineers.



Fifer also said the company has moved manufacturing of its SR-762 semi-automatic rile and SR-556 semi-automatic rife from Newport to its new plant in Mayodan, N.C., where it manufactures the AR-556. He said there is “a lot of commonality of parts and opportunity to reduce cost” in the manufacturing of the semi-automatic line by shifting them to the Mayodan plant.



He also disclosed that Ruger has ceased making its Red Label shotgun, which it reintroduced last year in the hope of reviving a line it discontinued in 2011. But Ruger has never been a big player in the shotgun market, and steep manufacturing costs behind the new Red Label model pushed the retail price to $1,400.



“We relaunched (the Red Label) last year with the hopes and expectations that we could hit a certain cost target,” Fifer said to analysts. “And we were never able to successfully get the manufacturing process under control.”



The Newport plant employs about 1,300 people and the Mayodan plant employed 125 people at the time it was manufacturing a single gun line.



Ruger in 2014 employed 1,843 people full time, down from 1,880 the year prior, according to its annual 10-K report the company filed with the Securities and Exchange Commission. The company employed nearly half the number of temporary workers, down to 230 in 2014 from 500 in 2013.



Fifer, in the email, said the job losses were the result of “natural attrition” combined with reduced hiring rates. Overtime hours among workers were also curtailed last year because of “the downturn in business in the second half of 2014.”



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John Lippman can be reached at jlippman@vnews.com or 603-727-3219.



Correction



Sturm, Ruger & Co. Chief Executive Officer Michael Fifer told analysts during a conference call that the firearm manufacturer was in need of hiring additional project managers. The job category was incorrectly described in an earlier version of this story.





