Sturm, Ruger & Company, Inc. Reports Third Quarter Fully Diluted Earnings Of 34¢ Per Share and Declares Dividend of 14¢ Per Share

October 29, 2014

Sturm, Ruger & Company, Inc. (NYSE-RGR) announced today that for the third quarter of 2014 the Company reported net sales of $98.3 million and fully diluted earnings of 34¢ per share, compared with net sales of $170.9 million and fully diluted earnings of $1.44 per share in the third quarter of 2013.

For the nine months ended September 27, 2014, net sales were $421.9 million and fully diluted earnings were $2.69 per share. For the corresponding period in 2013, net sales were $506.4 million and fully diluted earnings were $4.25 per share.

The Company also announced today that its Board of Directors declared a dividend of 14¢ per share for the third quarter for shareholders of record as of November 12, 2014, payable on November 26, 2014. This dividend varies every quarter because the Company pays a percent of earnings rather than a fixed amount per share. This dividend is approximately 40% of net income.

Chief Executive Officer Michael O. Fifer made the following observations related to the Company's 2014 third quarter performance:

• The decline in demand for the Company's products accelerated during the third quarter of 2014, with sales declining 43% year over year and estimated sell-through from the independent distributors to retail declining 44% year over year. During this period, consumer demand appeared to decline only 3% year over year (as evidenced by the change in National Instant Criminal Background Check System ("NICS") background checks, as adjusted by the National Shooting Sports Foundation).
• The primary causes for the year over year decline in demand for the Company's products during the third quarter included:
  • the reduction in overall consumer demand, combined with high inventory levels at retail,
  • retailers buying fewer firearms than they were selling, in an effort to reduce their inventories and generate cash,
  • these factors led to aggressive price discounting by many of our competitors (this price discounting was not matched by the Company, and likely resulted in lost market share).
• The reduction in consumer demand for the Company's products was further exacerbated by:
  • the lack of significant new product introductions from the Company, and
  • the continued limited availability of rimfire ammunition (which the Company believes adversely affected retail sales of .22 rifles, pistols and revolvers).
• Our earnings decreased 76% and our EBITDA decreased 61% from the third quarter of 2013. The main drivers of the reduced operating margins were:
  • reduced sales of firearms and firearms accessories,
  • the de-leveraging of fixed costs, including depreciation, indirect labor, engineering, and product development costs,
  • approximately $2 million of increased depreciation expense due to the reduction in the estimated useful lives of the Company's capital assets, and
  • approximately $2 million of increased depreciation expense due to the $151 million of capital equipment purchases as the Company increased firearm sales from $144 million in 2007 to $679 million in 2013.
• New products represented $72.3 million or 17% of firearm sales in the first nine months of 2014. At the end of September, the Company launched the AR-556 modern sporting rifle. Shipments of the AR-556 were limited in the third quarter and therefore did not meaningfully impact the financial results of the period.
• During the third quarter of 2014, inventories of finished goods increased 24,000 units at the independent wholesale distributors and 39,000 units at the Company.
• Cash generated from operations during the nine months ended September 27, 2014 was $31.0 million. At September 27, 2014, our cash totaled $28.1 million. Our current ratio is 2.7 to 1 and we have no debt.
• In the first nine months of 2014, capital expenditures totaled $28.7 million, much of it related to tooling fixtures and equipment for new product introductions, and to upgrade and modernize manufacturing equipment. We expect to invest approximately $40 million on capital expenditures during 2014 as we continue to prioritize new product development.
• In the first nine months of 2014, the Company returned $28.7 million to its shareholders through the payment of dividends.
• At September 27, 2014, stockholders' equity was $206.2 million, which equates to a book value of $10.62 per share, of which $1.44 per share was cash.

The Company previously disclosed that it expects to terminate its frozen defined benefit pension plans in the fourth quarter of 2014. The settlement and termination of the frozen pension plans are expected to result in a pre-tax cash payment of approximately $8 million, an income statement expense of approximately $40 million in the fourth quarter of 2014, and a reduction in stockholders' equity of approximately $20 million.

Today, the Company filed its Quarterly Report on Form 10-Q. The financial statements included in this Quarterly Report on Form 10-Q are attached to this press release. - View Release.

Tomorrow, October 30, 2014, Sturm, Ruger will host a webcast at 9:00 a.m. ET to discuss the third quarter operating results. Interested parties can access the webcast at www.ruger.com/corporate or by dialing 866-271-6130, participant code 75506015.

The Quarterly Report on Form 10-Q is available on the SEC website at www.sec.gov and the Ruger website at www.ruger.com/corporate. Investors are urged to read the complete Quarterly Report on Form 10-Q to ensure that they have adequate information to make informed investment judgments.