Sturm Ruger Financial Analysis Term Paper

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Sturm Ruger

Introduction

Sturm Ruger is one of the largest firearms manufacturers in the United States. The company is solid financially, despite some steep revenue declines. That said, the industry is still slated for growth, albeit slow growth. This calls into question the effectiveness of the company’s strategy, if it is suffering heavy revenue declines. The profits have also declined. While Sturm Ruger has made some moves financially to help get it through these times, while remaining profitable, such moves might not be sustainable, and the company will need to address the root causes of its revenue struggles, be those causes in its products, the competitive environment, pricing, distribution or otherwise.

Discussion of the Firearm Industry

The firearm industry in the United States is worth approximately $17 billion, spread over 690 businesses, with an annual growth rate of 2.8% (IBIS World, 2019). The National Shooting Sports Foundation estimates that the industry contributes around $6.8 billion in taxes to both state and federal government levels as well (NSSF.org, 2019). There is evidence to suggest that the industry is in a minor downturn in terms of demand (Hsu, 2018)

The industry is characterized by intense competition. In addition to domestic manufacturers, there are also many foreign companies involved in the sale of weapons in the United States. Regulations on firearm sales vary from state to state, such that the legal environment might be quite restrictive in one state, and quite loose the next state over. In general, firearms are a regulated industry. In addition to consumer uses, there are a lot of weapons that are produced for military applications, and that industry all told is substantially larger.

The firearm industry has as strengths strong lobby groups and a loyal fan base. Most gun owners will own multiple guns, and shoot recreationally or hunt. The industry also comes under intense scrutiny from the media and in some areas from regulators, leading to a sometimes restrictive legal environment. Such external groups pose one of the biggest threats, though economic downturn can also be a threat, especially for gun buyers who already own a lot of weapons – they might buy less when the economy starts to struggle.

The overall industry condition is moderately favorable. Companies in the industry are usually profitable, though the margins are not great due to high competition.

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Furthermore, growth is fairly slow as the industry is for the most part mature.

History of the Company

Sturm Ruger was founded in 1949 by William Ruger and Alexander Sturm in Connecticut. The company went public in 1969, and has been able to expand to multiple different manufacturing facilities in order to help fuel its growth. Ruger is one of the largest US firearms manufacturers and produces a wide range of different guns. It sells these through a variety of different retailers, mainly in the US, but there are some international sales…

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…It is worth noting that there were some financial adjustments that were made during this period to accommodate the sales slump. First, the company cut its dividends, from $32.8 million in 2016 to $19.2 million in 2018. In 2016 and 2017, the company was repurchasing stock, including $64.8 million in 2017. It did not repurchase stock in 2018, but instead diverted some capital to short-term investments, and ran down its cash on the balance sheet for the past couple of years. These adjustments have helped it to weather the storm, but obviously such steep revenue declines are not sustainable.

Conclusion

Sturm Ruger is a firearms manufacturer. The industry is relatively stable, with slow growth projected for the coming years. However, Sturm Ruger has seen steep revenue declines in the past couple of years. The company’s management has been able to weather the storm so far, largely by reducing dividends and cancelling stock buybacks, but increases in general and administrative expenses over this period are a bit concerning. That said, the company has a very healthy balance sheet both in terms of liquidity and solvency, given that it possesses no long term debt. All told, Sturm Ruger remains in a strong financial position, but will not want to sustain such sharp revenue declines going forward. If the company can stabilize the revenue side, it should be able to recover, given its general strength and overall strong financial condition, especially having the debt option to help….....

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