Sturm, Ruger & Co. (RGR) Q2 2012 Earnings Call August 02, 2012 9:00 am ET Executives Michael O. Fifer - Chief Executive Officer, President and Director Kevin B. Reid - Vice President and General Counsel Thomas A. Dineen - Chief Financial Officer, Principal Accounting Officer, Vice President and Treasurer Analysts Scott W. Hamann - KeyBanc Capital Markets Inc., Research Division Brian Gary Rafn - Morgan Dempsey Capital Management, LLC Mike Greene - The Benchmark Company, LLC, Research Division James Barrett - CL King & Associates, Inc. Presentation Operator
Michael O. FiferThank you, Kevin. Financial results. For the second quarter of 2012, net sales were $119.6 million and fully diluted earnings were $0.91 per share. For the corresponding period in 2011, net sales were $79.6 million and fully diluted earnings were $0.56 per share. This represents year-over-year sales growth for the quarter of 50% and earnings growth of 63%. For the first half of 2012, net sales were $231.9 million and fully diluted earnings were $1.71 per share. For the corresponding period in 2011, net sales were $155.1 million and fully diluted earnings were $0.99 per share. This represents sales growth for the first half of 2012 of 50%, and earnings growth of 73%. In both the second quarter and the first half of 2012, our earnings growth exceeded our sales growth, and we're very proud of that. New products. New product introductions remained a strong driver of demand and were $87.8 million or 38% of sales in the first half of 2012. As a reminder, we define new products as only those that were introduced in the past 2 years, and we include only major new products and not minor line extensions or additional calibers. The major new products introduced in the first half of 2012 include the 10/22 Takedown rifle, the Ruger American Rifle, the SR22 pistol and the 22/45 Lite pistol. To reiterate, more than 1/3 of our year-to-date sales were products that did not exist 2 years ago. This is a great achievement for our engineers and another testament to the importance of new product development. Sell-through. The demand for Ruger products in the first half of 2012 is very strong as evidenced by the 59% growth in estimated sell-through of Ruger products from the independent wholesale distributors to retailers. We believe that some of this demand was attributable to political and economic factors that favorably impacted the entire firearms industry as evidenced by the 21% increase in the National Instant Criminal Background Check System background checks, which we call NICS. We believe that this -- our growth substantially outpaced the growth in NICS checks because of the popularity of our new products.
Inventory and production. In response to the strong demand and the new products that were added in the first half of 2012, we increased our unit production by 52% from the first half of 2011. This increase in production would not have been possible without our investment of $27 million in capital expenditures in the past 4 quarters. These capital expenditures exceeded depreciation by approximately $13 million during this period, which represented a 7% increase to our capital equipment base. Our commitment to continuous improvement through the implementation of lean business practices enabled us to leverage this investment to achieve the 52% increase in unit production. Despite the significant increase in production, our finished goods inventory decreased slightly during the first half of 2012.Our independent wholesale distributors' inventory were reduced by 50% or 68,000 units during the same period as retailer demand pulled Ruger product through the channel. We believe that both Ruger and our independent distributors would benefit by having more finished goods in inventory to allow for a rapid fulfillment of demand. Our goal is to replenish -- let me say this, our long-term goal is to replenish our finished goods inventory in future periods to levels that would better serve our customers. This replenishment could increase the value of finished goods inventory by as much as $15 million from the current level, but try as we might, I don't think it will happen too soon. Read the rest of this transcript for free on seekingalpha.com