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Sturm Ruger shares suffer steepest dip in 5 months as gun sales wane

Bloomberg News

July 30. 2014 7:39PM

Sturm, Ruger & Co. shares fell the most in five months after reporting a drop in second-quarter earnings, missing analysts’ estimates as demand for guns wane.

The largest publicly traded U.S. firearms maker said earnings per share fell 31 percent to $1.12 in the three months ending June 28, compared with projections of $1.23 a share. Sales fell 14 percent to $153.7 million, lagging behind forecasts.

The shares tumbled as much as 11 percent, their biggest intraday decline since February. They were trading at $52.17 at 9:45 a.m. in New York on Wednesday and have declined 21 percent this year through Tuesday.

Gun sales are declining after enthusiasts stockpiled weapons following the massacre at Sandy Hook Elementary School in Newtown, Conn., in 2012, fearing broad federal curbs on arms sales.

While nationwide legislation has failed to pass, some states are enacting their own restrictions, leading Sturm Ruger and others to move production to friendlier locales.

“Black rifles had a huge surge due to fear of federal legislation and a lot of it has subsided,” said Brian Ruttenbur, an analyst at CRT Capital Group, in a phone call before the results. Handgun sales are still on the rise, he said.

Layoffs were announced this month at the Newington, N.H., facility of firearms manufacturer SigSauer, which it had “instituted a series of workforce adjustments” amid declining sales after “record highs experienced over the past couple of years.”

A SigSauer spokesman declined to cite a specific number of workers that could be affected, but comments by the state official and an education administrator involved in workforce training indicate that more than 180 employees could be out of work as a result of recent cuts by the company.

Sturm Ruger, based in Southport, Conn., reported background checks for gun purchases, as measured by the National Instant Criminal Background Check System, fell 12 percent in the quarter and 18 percent in the first half of the year, hurting producers across the industry.

The NICS records the number of people seeking screening in order to buy a gun. Although the figures aren’t a complete picture of the number of people purchasing firearms, they are an indicator of interest in the industry.

Ruger announced it will expand its share buyback program from $25 million to $100 million and declared a dividend of 45 cents a share for the second quarter.

Smith & Wesson, based in Springfield, Mass., surprised investors last month with a sales and profit outlook for fiscal 2015 that was lower than what analysts estimated.

Sturm Ruger and other manufacturers will have to come up with different models in order to mitigate the decline in demand, said Brian Rafn, director at Morgan Dempsey Capital Management and a Sturm Ruger investor.

“They’re just going to bury the industry in new products,” Rafn said in a phone interview before the results.

Sturm Ruger said new products accounted for 18 percent of firearm sales in the first half. The company plans to invest $40 million in research to develop new product lines this year and has set up a $26 million facility in Mayodan, N.C., dedicated to the production of new lines of rifles.

The Mayodan facility, which Sturm Ruger announced last year, is its first major expansion in more than 25 years. Production at the plant was scheduled to start during the first quarter.

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