Sturm, Ruger & Company, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also reports fourth-quarter results. Ruger designs, manufactures, and sells firearms, primarily in the United States; firearms generated approximately 99% of sales. Shipments of Ruger-made Marlin lever-action rifles began late in Q4 2021.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $730.7 million | $568.9 million |
| Gross profit / margin | $279.6 million / 38.3% | $191.4 million / 33.7% |
| Operating income / margin | $203.1 million / 27.8% | $119.1 million / 20.9% |
| Net income | $155.9 million | $90.4 million |
| Diluted EPS | $8.78 | $5.09 |
| Operating cash flow | $172.3 million | $143.8 million |
| Capital expenditures | $28.8 million | $24.2 million |
| Cash and short-term investments at year-end | $221.0 million | $141.2 million |
The company reported no debt at year-end. Working capital was $251.6 million and the current ratio was 4.3:1. Short-term investments were $200.0 million, primarily U.S. Treasury instruments maturing within one year. The company paid $59.1 million in dividends during 2021; the annual dividend per share was $3.36.
Fourth-quarter 2021 sales were $168.0 million, down 0.7% year over year; gross profit was $63.4 million, with a 37.7% margin, and net income was $38.1 million versus $31.7 million in Q4 2020.
Changes versus the prior year
- Full-year sales rose 28.5%, and net income rose to $155.9 million from $90.4 million. Firearms sales increased 28.7%; castings sales declined 13.6% and remained less than 1% of total sales.
- Firearm shipments increased 24.8%, while production increased 29.9%. Management attributed margin improvement to higher volume, fixed-cost leverage, labor efficiencies, and reduced promotional activity.
- Estimated distributor-to-retailer sell-through increased 3.5%, but adjusted NICS background checks declined 12%. Orders received fell 39.7% to $606.5 million; year-end backlog declined to 1,204,500 units from 1,511,900.
- Cash from operations increased by $28.5 million. Capital spending rose to $28.8 million. Cash and short-term investments grew despite $59.1 million of dividends and $28.8 million of capital expenditures.
Outlook, risks, and unusual items
- Management expected 2022 capital expenditures of approximately $20 million, largely for new-product tooling and manufacturing upgrades; actual spending could vary. Management estimated the 2022 effective tax rate at approximately 25%.
- The company’s stated dividend practice is to distribute approximately 40% of earnings, with payments varying by quarter. In February 2022, the board authorized a dividend of $0.86 per share.
- COVID-19-related employee measures cost approximately $1.5 million in 2021. Management said facilities remained open with limited operating restrictions, but future effects on operations, supply chain, and demand remained uncertain.
- Key risks include firearms regulation, product liability and municipal litigation, demand volatility, concentrated distributor relationships, raw-material and transportation availability and cost, labor constraints, facility disruption, and execution of the Marlin integration. The three largest distributors represented 59% of 2021 firearm sales.
- At year-end the company disclosed four product-related lawsuits: two traditional product-liability cases and two municipal cases, including a lawsuit brought by Mexico in 2021. Management viewed a material adverse effect on financial position as unlikely, while acknowledging possible material effects on results or cash flows in a particular period. Product-liability accruals totaled $0.9 million.
- A new $40 million unsecured revolving credit facility was entered into in January 2022, expiring January 2024. The company said it was debt-free at year-end and expected to fund commitments from operating cash flows and existing cash.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. The LIFO inventory reserve was identified as a critical audit matter; net inventory was $43.9 million and the reserve was $51.8 million.
Important facts for investors to verify
- Whether demand, sell-through, orders, and backlog remain healthy after the 2021 decline in orders and adjusted NICS checks; distributor inventory figures exclude goods in transit and retailer inventory.
- Whether higher production and Marlin rifle launches translate into sustained sales and margins, and whether Marlin quality, cost, and delivery targets are met.
- How input-cost inflation, labor availability, logistics constraints, and regulatory changes affect production and profitability.
- Updates on the Mexico and City of Gary litigation, insurance coverage, and any changes to product-liability accruals or potential exposures.
- Cash deployment, including dividends, planned capital expenditures, and use or renewal of the revolving credit facility.