What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-30 compared with 2024-07-31 · 169 added, 155 removed, 146 unchanged (69% of the section changed)

1 unchanged sentence

Company Overview

Sturm, Ruger & Company, Inc.

Sturm, Ruger & Company,

(the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers.

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99% of sales are from firearms.

Export sales accounted for approximately 5% and 7% of total sales for the six month periods ended June

29, 2024 and July 1, 2023, respectively.

The Company’s design and manufacturing operations are located in the United States and

almost all product content is domestic.

Export sales accounted for approximately 5% and 7% of total sales for the nine month periods ended September

28, 2024 and September 30, 2023, respectively.

The Company’s design and manufacturing operations are located in the United States

and almost all product content is domestic.

The Company’s firearms are sold through a select number of independent wholesale distributors,

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Less than 1% of sales are from the castings segment.

Orders for many models of firearms

from the independent distributors tend to be stronger in the first quarter of the year and weaker in the third quarter of the year.

is due in part to the timing of the distributor show season, which occurs during the first quarter.

Orders for many models of

firearms from the independent distributors tend to be stronger in the first quarter of the year and weaker in the third quarter of the

This is due in part to the timing of the distributor show season, which occurs during the first quarter.

Results of Operations

The estimated unit sell-through

of the Company’s products from the independent distributors to retailers increased 1% in the first half of 2024 compared to the

prior year period.

For the same period, National Instant Criminal Background Check System (“NICS”) background checks (as adjusted

by the National Shooting Sports Foundation (“NSSF”)) decreased 6%.

Estimated sell-through from the independent distributors

to retailers and total adjusted NICS background checks for the trailing six quarters follow:

of the Company’s products from the independent distributors to retailers increased 4% in the first nine months of 2024 compared

to the prior year period.

For the same period, National Instant Criminal Background Check System (“NICS”) background checks

(as adjusted by the National Shooting Sports Foundation (“NSSF”)) decreased 3%.

Estimated sell-through from the independent

distributors to retailers and total adjusted NICS background checks for the trailing seven quarters follow:

Estimated Units Sold from Distributors to Retailers (1)

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NICS background checks are also performed for permit applications, permit renewals, and other administrative

The adjusted NICS data

presented above was derived by the NSSF by subtracting out NICS checks that are not directly related to the sale of a firearm, including

The adjusted NICS

data presented above was derived by the NSSF by subtracting out NICS checks that are not directly related to the sale of a firearm, including

checks used for concealed carry (“CCW”) permit application checks, as well as checks on active CCW permit databases.

NICS checks represent less than half of the total NICS checks.

Adjusted NICS data

can be impacted by changes in state laws and regulations and any directives and interpretations issued by governmental agencies.

Adjusted NICS data can be impacted

by changes in state laws and regulations and any directives and interpretations issued by governmental agencies.

Orders Received and Ending Backlog

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backlog for planning production levels.

The units ordered, value of orders

received, average sales price of units ordered, and ending backlog for the trailing six quarters are as follows (dollars in millions,

The units ordered, value of

orders received, average sales price of units ordered, and ending backlog for the trailing seven quarters are as follows (dollars in millions,

except average sales price):

(All amounts shown are net of Federal Excise Tax of 10% for handguns and

11% for long guns.)

(All amounts shown are net of Federal Excise Tax of 10% for handguns

and 11% for long guns.)

Units Ordered

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to plan production levels.

Consequently, the Company’s overall production in the second quarter of 2024 increased 18% from the first

quarter of 2024 .

The Company’s overall production in the third quarter of 2024 decreased 11% from the second quarter

Summary Unit Data

Firearms unit data for the trailing

six quarters are as follows (dollar amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns):

Firearms unit data for the

trailing seven quarters are as follows (dollar amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns):

Units Ordered

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Ending Unit Backlog

During the first half of 2024,

the Company’s finished goods inventory increased by 3,200 units and distributor inventories of the Company’s products decreased

by 42,800 units.

Inventory unit data for the trailing six quarters follows:

During the third quarter

of 2024, the Company’s finished goods inventory increased by 2,900 units and distributor inventories of the Company’s

products decreased by 8,900 units.

Inventory unit data for the trailing seven quarters

Company Inventory

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have access to data on retailer inventories of the Company’s products.

Net Sales, Cost of Products Sold, and Gross Profit

Net sales, cost of products sold,

and gross profit data for the three months ended (dollars in millions):

June 29, 2024

Net Sales, Cost of Products Sold, and Gross

Net sales, cost of products

sold, and gross profit data for the three months ended (dollars in millions):

September 28,

September 30,

Net firearms sales

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Cost of products sold

The decrease in total consolidated

net sales and net firearms sales for the three months ended June 29, 2024 is attributable to decreased consumer demand for firearms.

of new products, including the Security-380 pistol, Super Wrangler revolver, Marlin lever-action rifles, LC Carbine, Small-Frame Autoloading

Rifle, and American Centerfire Rifle Generation II represented $37.9 million or 30.6% of firearm sales in the three months ended June

The increase in total consolidated

net sales and net firearms sales for the three months ended September 28, 2024 is attributable to strong demand for certain of the Commpany’s

Sales of new products, including the Security-380 pistol, Super Wrangler revolver, Marlin lever-action rifles, LC Carbine, Small-Frame

Autoloading Rifle, and American Centerfire Rifle Generation II represented $35.5 million or 31.0% of firearm sales in the three months

ended September 28, 2024.

New product sales include only major new products that were introduced in the past two years.

The decreased gross profit for

the three months ended June 29, 2024 is attributable to unfavorable deleveraging of fixed costs resulting from decreased production, a

product mix shift toward products with relatively lower margins that remain in relatively stronger demand, and the decrease in sales.

The decrease in gross margin for

the three months ended June 29, 2024 is attributable to the aforementioned factors, partially offset by increased pricing.

Net sales, cost of products sold,

and gross profit data for the six months ended (dollars in millions):

June 29, 2024

The decreased gross profit

for the three months ended September 28, 2024 is attributable to unfavorable deleveraging of fixed costs resulting from decreased production

and a product mix shift toward products with relatively lower margins that remain in relatively stronger demand.

The decrease in gross margin

for the three months ended September 28, 2024 is attributable to the aforementioned factors, partially offset by increased pricing.

Net sales, cost of products

sold, and gross profit data for the nine months ended (dollars in millions):

September 28,

September 30,

Net firearms sales

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The decrease in total consolidated

net sales and net firearms sales for the six months ended June 29, 2024 is attributable to decreased consumer demand for firearms.

of new products, including the Security-380 pistol, Super Wrangler revolver, Marlin lever-action rifles, LC Carbine, Small-Frame Autoloading

Rifle, and American Centerfire Rifle Generation II, represented $79.7 million or 31.3% of firearm sales in the first half of 2024.

product sales include only major new products that were introduced in the past two years.

The decreased gross profit for

the six months ended June 29, 2024 is attributable to unfavorable deleveraging of fixed costs resulting from decreased production, a product

mix shift toward products with relatively lower margins that remain in relatively stronger demand, and the decrease in sales.

The decrease in gross margin for

the six months ended June 29, 2024 is attributable to a product mix shift toward products with relatively lower margins that remain in

relatively stronger demand and unfavorable deleveraging of fixed costs resulting from decreased production, partially offset by increased

net sales and net firearms sales for the nine months ended September 28, 2024 is attributable to decreased consumer demand for firearms.

Sales of new products, including the Security-380 pistol, Super Wrangler revolver, Marlin lever-action rifles, LC Carbine, Small-Frame

Autoloading Rifle, and American Centerfire Rifle Generation II, represented $113.3 million or 31.2% of firearm sales in the first nine

months of 2024.

New product sales include only major new products that were introduced in the past two years.

The decreased gross profit

for the nine months ended September 28, 2024 is attributable to unfavorable deleveraging of fixed costs resulting from decreased production,

a product mix shift toward products with relatively lower margins that remain in relatively stronger demand, and the decrease in sales.

The decrease in gross margin

for the nine months ended September 28, 2024 is attributable to the aforementioned factors, partially offset by increased pricing.

Selling and General and Administrative Expenses

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expenses data for the three months ended (dollars in millions):

June 29, 2024

September 28,

September 30,

Selling expenses

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Total operating expenses

The decrease in selling expenses

for the three months ended June 29, 2024 was attributable to modest reductions in several selling and marketing initiatives.

The increase in general, and administrative

expenses for the three months ended June 29, 2024 was primarily attributable to increased professional service costs.

The increase in selling

expenses for the three months ended September 28, 2024 was attributable to increased spending on advertising, partially offset by

modest reductions in several selling and marketing initiatives.

The increase in general and

administrative expenses for the three months ended September 28, 2024 was primarily attributable to increased professional service costs.

Selling and general and administrative

expenses data for the six months ended (dollars in millions):

June 29, 2024

expenses data for the nine months ended (dollars in millions):

September 28,

September 30,

Selling expenses

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Total operating expenses

Selling expenses for the six months

ended June 29, 2024 was consistent with the prior year period.

The increase in general, and administrative

expenses for the six months ended June 29, 2024 was primarily attributable to accrued severances of $1.5 million taken in the first quarter

of 2024 related to a reduction in force involving approximately 80 employees, largely offset by decreased incentive compensation expenses.

The aforementioned accrued severances are expected to be settled in cash and consist of one-time termination charges arising from severance

obligations and other customary employee benefit payments in connection with a reduction in force.

The reduction in force is expected

to result in approximately $9 million of annualized cash savings.

The increase in selling expenses

for the nine months ended September 28, 2024 was attributable increased spending on advertising, partially offset by modest reductions

in several selling and marketing initiatives.

The increase in general and

administrative expenses for the nine months ended September 28, 2024 was primarily attributable to accrued severances of $1.5 million

taken in the first quarter of 2024 related to a reduction in force involving approximately 80 employees, partially offset by decreased

incentive compensation expenses.

The aforementioned accrued severances are expected to be settled in cash and consist of one-time termination

charges arising from severance obligations and other customary employee benefit payments in connection with a reduction in force.

The reduction in force is

expected to result in approximately $9 million of annualized cash savings.

This action is part of the Company’s initiatives to reallocate

its resources and cost structure into prioritized areas that will drive long-term growth and improve margins.

As the Company focuses on

these goals, it will continue to pursue opportunities to reduce or eliminate investment in areas of lower focus.

Other income data for the three

Other income data for the

three months ended (dollars in millions):

September 28,

September 30,

The decrease in other income

for the three months ended September 28, 2024 was attributable to decreased interest income.

Other income data for the nine

months ended (dollars in millions):

June 29, 2024

The decrease in other income for

the three months ended June 29, 2024 was attributable to decreased interest income and miscellaneous income.

Other income data for the six months

ended (dollars in millions):

June 29, 2024

The decrease in other income for

the six months ended June 29, 2024 was the result of decreases in interest income and miscellaneous income.

September 28,

September 30,

The decrease in other income

for the nine months ended September 28, 2024 was the result of decreases in interest income and miscellaneous income.

Income Taxes and Net Income

The Company's 2024 and 2023 effective

tax rates differ from the statutory federal tax rate due principally to research and development tax credits, state income taxes and the

nondeductibility of certain executive compensation.

The Company’s effective income tax rate was 21.0% and 21.3% for the three and

six months ended June 29, 2024, respectively.

The Company’s effective income tax rate was 20.0% and 21.1% for the three and six

months ended July 1, 2023, respectively.

As a result of the foregoing factors,

consolidated net income was $8.3 million for the three months ended June 29, 2024, a decrease of 48.9% from $16.2 million in the comparable

prior year period.

The Company's 2024 and 2023

effective tax rates differ from the statutory federal tax rate due principally to research and development tax credits, state income taxes

and the nondeductibility of certain executive compensation.

The Company’s effective income tax rate was 10.0% and 18.9% for the

three and nine months ended September 28, 2024, respectively.

The Company’s effective income tax rate was 8.1% and 18.9% for the

three and nine months ended September 30, 2023, respectively.

As a result of the foregoing

factors, consolidated net income was $4.7 million for the three months ended September 28, 2024, a decrease of 36.2% from $7.4 million

in the comparable prior year period.

Consolidated net income was

million for the six months ended June 29, 2024, a decrease of 49.7% from $30.5 million in the comparable prior year period.

$20.1 million for the nine months ended September 28, 2024, a decrease of 47.1% from $38.0 million in the comparable prior year period.

Non-GAAP Financial Measures

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by dividing EBITDA by total net sales.

EBITDA was $14.5 million for the

three months ended June 29, 2024, a decrease of 42.9% from $25.3 million in the comparable prior year period.

For the six months ended June

29, 2024 EBITDA was $28.0 million, a decrease of 43.0% from $49.1 million in the comparable prior year period.

EBITDA was $9.9 million for

the three months ended September 28, 2024, a decrease of 25.2% from $13.3 million in the comparable prior year period.

For the nine months ended

September 28, 2024 EBITDA was $37.9 million, a decrease of 39.2% from $62.4 million in the comparable prior year period.

Non-GAAP Reconciliation – EBITDA

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Three Months Ended

Six Months Ended

June 29, 2024

Nine Months Ended

September 28,

September 30,

September 28,

September 30,

Income tax expense

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Liquidity and Capital Resources

At the end of the second quarter

At the end of the third quarter

of 2024, the Company’s cash and short-term investments totaled $96.0 million.

Pre-LIFO working capital of $266.8 million, less

the LIFO reserve of $66.9 million, resulted in working capital of $199.9 million and a current ratio of 4.8 to 1.

Cash provided by operating activities

was $26.1 million for the six months ended June 29, 2024, compared to $21.8 million for the comparable prior year period.

in cash provided in the six months ended June 29, 2024 is primarily attributable to decreases in inventory and prepaid expenses and other

assets in the six months ended June 29, 2024, partially offset by the decrease in net income in the six months ended June 29, 2024.

Pre-LIFO working capital of $260.4 million, less the

LIFO reserve of $68.3 million, resulted in working capital of $192.1 million and a current ratio of 4.5 to 1.

Cash provided by operating

activities was $35.5 million for the nine months ended September 28, 2024, compared to $1.3 million for the comparable prior year period.

The increase in cash provided in the nine months ended September 28, 2024 is primarily attributable to decreases in inventory and prepaid

expenses and other assets in the nine months ended September 28, 2024, partially offset by the decrease in net income in the nine months

ended September 28, 2024.

Third parties supply the Company

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Investing and Financing

Capital expenditures for the six

months ended June 29, 2024 totaled $10.4 million, an increase from $4.9 million in the comparable prior year period.

In 2024, the Company

expects capital expenditures related to new product introductions and upgrades to our manufacturing equipment and facilities to total

approximately $20 million.

Due to market conditions and business circumstances, actual capital expenditures could vary significantly from

the projected amount.

Capital expenditures for the

nine months ended September 28, 2024 totaled $17.2 million, an increase from $11.6 million in the comparable prior year period.

the Company expects capital expenditures related to new product introductions and upgrades to our manufacturing equipment and facilities

to total approximately $20 million.

Actual capital expenditures could vary significantly from the projected amount due to the timing of

capital projects.

The Company finances, and intends to continue to finance, all of these activities with funds provided by operations

and current cash and cash equivalents.

Dividends of $6.7 million were

paid during the six months ended June 29, 2024.

The Company has financed its dividends with cash provided by operations and current cash.

The quarterly dividend varies every quarter because the Company pays a percentage of earnings rather than a fixed amount per share.

Company’s practice is to pay a dividend of approximately 40% of net income.

On July 26, 2024, the Company’s

Board of Directors authorized a dividend of 19¢ per share to shareholders of record on August 15, 2024, payable on August 30, 2024.

The payment of future dividends depends on many factors, including internal estimates of future performance, then-current cash and short-term

investments, and the Company’s need for funds.

As of June 29, 2024, the Company

had $76.4 million of United States Treasury instruments which mature within one year.

The Company also invests available cash in a bank-managed

money market fund that invests exclusively in United States Treasury instruments which mature within one year.

At June 29, 2024, the Company’s

investment in this money market fund totaled $22.1 million.

During the six months ended June

29, 2024 the Company purchased 477,917 shares of its common stock for $20.3 million in the open market.

The average price per share purchased

Dividends of $10.0 million

were paid during the nine months ended September 28, 2024.

The Company has financed its dividends with cash provided by operations and

current cash.

The quarterly dividend varies every quarter because the Company pays a percentage of earnings rather than a fixed amount

The Company’s practice is to pay a dividend of approximately 40% of net income.

On October 25, 2024, the Company’s

Board of Directors authorized a dividend of 11¢ per share to shareholders of record on November 13, 2024, payable on November 27,

The payment of future dividends depends on many factors, including internal estimates of future performance, then-current cash and

short-term investments, and the Company’s need for funds.

As of September 28, 2024,

the Company had $61.5 million of United States Treasury instruments which mature within one year.

The Company also invests available cash

in a bank-managed money market fund that invests exclusively in United States Treasury instruments which mature within one year.

28, 2024, the Company’s investment in this money market fund totaled $27.0 million.

During the nine months ended

September 28, 2024 the Company purchased 698,759 shares of its common stock for $29.3 million in the open market.

The average price per

share purchased was $41.99.

These purchases were funded with cash on hand.

As of June 29, 2024, $54.4 million remained authorized for future stock repurchases.

Based on its unencumbered assets,

the Company believes it has the ability to raise cash through the issuance of short-term or long-term debt.

The Company’s unsecured

$40 million credit facility, which expires on January 7, 2028, was unused at June 29, 2024.

As of September 28, 2024, $45.3 million remained authorized

for future stock repurchases.

Based on its unencumbered

assets, the Company believes it has the ability to raise cash through the issuance of short-term or long-term debt.

The Company’s

unsecured $40 million credit facility, which expires on January 7, 2028, was unused at September 28, 2024.

Other Operational Matters

In the normal course of its manufacturing

operations, the Company is subject to occasional governmental proceedings and orders pertaining to workplace safety, firearms serial number

tracking and control, waste disposal, air emissions and water discharges into the environment.

The Company believes that it is generally

in compliance with applicable Bureau of Alcohol, Tobacco, Firearms & Explosives, environmental, and safety regulations and the outcome

of any proceedings or orders will not have a material adverse effect on the financial position or results of operations of the Company.

If these regulations become more stringent in the future and the Company is not able to comply with them, such noncompliance could have

a material adverse impact on the Company.

In the normal course of its

manufacturing operations, the Company is subject to occasional governmental proceedings and orders pertaining to workplace safety, firearms

serial number tracking and control, waste disposal, air emissions and water discharges into the environment.

The Company believes that

it is generally in compliance with applicable Bureau of Alcohol, Tobacco, Firearms & Explosives, environmental, and safety regulations

and the outcome of any proceedings or orders will not have a material adverse effect on the financial position or results of operations

of the Company.

If these regulations become more stringent in the future and the Company is not able to comply with them, such noncompliance

could have a material adverse impact on the Company.

The Company has 15 independent

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law enforcement markets, respectively.

The Company self-insures a significant

amount of its product liability, workers’ compensation, medical, and other insurance.

It also carries significant deductible amounts

on various insurance policies.

The Company self-insures a

significant amount of its product liability, workers’ compensation, medical, and other insurance.

It also carries significant deductible

amounts on various insurance policies.

In September 2024, the Company did not renew its product liability coverage with its incumbent

carriers and established a wholly-owned captive insurance company for claims made on or after September 1, 2024.

The Company expects to realize

1 unchanged sentence

Adjustments to Critical Accounting Policies

The Company has not made any adjustments

to its critical accounting estimates and assumptions described in the Company’s 2023 Annual Report on Form 10-K filed on February

21, 2024, or the judgments affecting the application of those estimates and assumptions.

The Company has not made any

adjustments to its critical accounting estimates and assumptions described in the Company’s 2023 Annual Report on Form 10-K filed

on February 21, 2024, or the judgments affecting the application of those estimates and assumptions.

Forward-Looking Statements and Projections

The Company may, from time to

time, make forward-looking statements and projections concerning future expectations.

The Company may, from time

to time, make forward-looking statements and projections concerning future expectations.

Such statements are based on current expectations

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis