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Sturm, Ruger & Company(NYSE: RGR)
Q1 2022 Earnings Call
May 05, 2022, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and thank you for standing by. Welcome to the first quarter Sturm Ruger earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session.
[Operator instruction] I will now hand the conference over to speak today, Christopher Killoy, president, and chief executive officer. Please go ahead.
Chris Killoy -- President and Chief Executive Officer
Good morning, and welcome to the Sturm Ruger and Company's first quarter 2022 conference call. I would like to ask Kevin Reid, our general counsel, to read the caution of forward-looking statements, then Tom Dineen, our chief financial officer, will give an overview of the first quarter 2022 financial results, and then I will discuss our operations and the state of the market. After that, we'll get to your questions. Kevin?
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Kevin Reid -- General Counsel
Thanks, Chris. We want to remind everyone that statements made in the course of this meeting, the state, the companies or management's intentions, folks, beliefs, expectations, or predictions of the future are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's SEC filings, including, but not limited to the company's reports on Form 10-K for the year ended December 31st, 2021, and of course, the Form 10-Q for the first quarter of 2022, which we filed just last night.
Copies of these documents may be obtained by contacting the company or the SEC, or on the company website at ruger.com/corporate or the SEC website at sec.gov. We do reference non-GAAP EBITDA, please note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found in our Form 10-K for the year ended December 31st, 2021, and our Form 10-Q for the first quarter of 2022, both of which are posted to our website. Furthermore, the company disclaims all responsibility to update forward-looking statements. Chris?
Chris Killoy -- President and Chief Executive Officer
Thank you, Kevin. Now, Tom, I will discuss the company's first quarter 2022 results.
Tom Dineen -- Chief Financial Officer
Thanks, Chris. For the first quarter of 2022, net sales are $166.6 million, and diluted earnings were $1.70 per share. For the corresponding period in 2021, net sales were $184.4 million, and diluted earnings were $2.16 per share. The 10% reduction in sales from last year reflects decreased consumer demand for firearms, from the unprecedented levels of the surge that began early in 2020 and remained throughout the first quarter of 2021.
In fact, sales in the first quarter of 2021 were the second-highest in the history of the company, outpaced only by the second quarter of 2021. Our profitability declined in the first quarter of 2022 from the first quarter of 2021. Gross margin decreased from 39.4% to 34.9%, and operating profit margin decreased from 28.2% to 23.2%. The lower margins resulted from the unfavorable de-leveraging of fixed costs, resulting from the decreased sales and production, plus inflationary cost increases in materials, commodities, services, energy, fuel, and transportation, partly offset by increased pricing.
On April 2nd, 2022 are cash and short-term investments totaled $212 million. We invest available cash in United States Treasury instruments, which mature within one year. Our current ratio is 5.1 to 1, and we had no debt. Our robust debt-free balance sheet provides versatility and strength as we explore and consider opportunities that may emerge in 2022 and beyond.
April 2nd, 2022 stockholders' equity was $378 million, which equates to a book value of $21.43 per share, of which $12 per share was cash and short-term investments. During the first quarter of 2022, we generated $19 million of cash from operations. We reinvested $11 million of that back into the company in the form of capital expenditures. We estimate that 2022 capital expenditures will be approximately $25 million, predominantly related to new product development, and to upgrade and modernize manufacturing equipment and facilities.
In the first quarter of 2022, we returned $15 million to our shareholders through the payment of dividends. Our Board of directors declared a $0.68 per share quarterly dividend for shareholders of record as of May 16, 2022, payable on May 31st, 2022. As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies quarter to quarter. That's the financial update for the quarter.
Chris.
Chris Killoy -- President and Chief Executive Officer
Thanks, Tom. As overall consumer demand subsided during the first quarter of 2022, our finished goods inventory increased 29,800 units, and the distributor inventories of the company's products increased 80,400 units. While channel inventory of several more product families has largely been replenished over the past few quarters. Inventory of many of our product families remains lower than desired.
We continue to focus on our production mix, and prioritize the product families that we remain in strong demand, and have often been undersupplied in the marketplace. These include the American set of fire rifles, 10/22 Rimfire rifles, the Ruger precision rifles, the pistol caliber Corbin, LCRs', SR1911, our single Action and Double X Revolver families, and of course, are Marlin 1895 Lever-action rifles. Our operation in logistics folks have done a great job navigating the challenges brought about by tight labor markets, transportation issues, and supply chain delays, which allow for greater flexibility in our production mix, and mitigate the adverse impacts of these challenges. We will continue to be responsive and proactive in our manufacturing approach, probably [inaudible] the individual model to optimize the inventory mix of Ruger firearms in the distribution chain, and allow for continued healthy replenishment of Ruger guidance at the retail and distribution level.
And our product development teams continue to desire to create the firearms the future. Many of which are often recognized by the industry. Most recently, the Ruger custom shop 10/22 left-hand competition rifle, was awarded the prestigious Golden Bullseye Award, as the American Rifleman Rifle of the Year. We are excited to see the ongoing product progress of our Marlin product line.
We continue to increase production volumes, and look forward to reintroducing additional Ruger-made Marlin Lever-Action rifles throughout the year. We are really just scratching the surface of the value that Marlin products and the Marlin brand will bring to Ruger. We are looking forward to more Ruger and Marlin new product launches in 2022. Sales of new products, including the PC charger, the MAX-9 pistol, LCP MAX Pistol, and the Model 1895 Lever-Action Rifle, represent a $21.4 million or 13% of firearm sales in the first quarter of 2022.
As a reminder, derivatives and product line extensions, and mature product families are not included in our new product sales calculation. Several popular firearms that were considered new products in 2021, including the Regular Revolver, the Ruger 5.7 pistol, and the LCP II in.22 rifle, have now been in production for over two years and are no longer included in the new product sales for the first quarter of 2022. Those firearms continue to sell well for us. They're just no longer captured in our new product metric.
We will remain disciplined and committed to our strategy of pursuing manufacturing excellence, and vigorously developing innovative and exciting new products. Those were the highlights of the first quarter of 2022. Operator, may we have the first question.
Questions & Answers:
Operator
[Operator instruction] Our first question comes on the line of Ryan Meyers from Lake Street Capital. Your line is open.
Ryan Meyers -- Lake Street Capital Markets -- Analyst
Good morning, guys. First question for me. So when you look at the overall firearms market, do you think demand has kind of moderated and will sort of be operating at this steady level going through the rest of 2022 and into 2023?
Chris Killoy -- President and Chief Executive Officer
Thanks, Ryan. Well, you look at the first quarter next, down just over 20%, and then you look at April next, which I think came in down like 19.7% or just about 20% adjusted next set is. And so that's fairly consistent trend. We can't predict the future, but certainly, the last couple of months have shown that decline over those historic highs that we saw last year.
So that's what we've seen so far, and we saw it in April as well.
Ryan Meyers -- Lake Street Capital Markets -- Analyst
OK. That makes sense. And then can you just unpack a little bit the delta between the ASPs on new orders, and then ASPs on unit shipped during the quarter?
Chris Killoy -- President and Chief Executive Officer
I think the biggest thing on the new orders, you've got some new products that are in there. You've got, if you look at Marlin in 1895, for example, it's a fairly expensive gun. You've also got some things that changed over time, as far as what we shipped in the fourth quarter, and that's what was opened open later on in Q1. We don't typically pay a lot of attention to that mix.
What's on order, either the ASP or the actual mix. Just because we're focused more on what's selling from our distributors, we look at that on a frankly, a weekly basis, and every two weeks we moderate our production, up or down in particular product families as best we can to meet that demand.
Ryan Meyers -- Lake Street Capital Markets -- Analyst
OK. Now that makes sense. So it's largely just based on kind of the product mix there that kind of drove most of the ASP.
Chris Killoy -- President and Chief Executive Officer
It is, not anything significant.
Ryan Meyers -- Lake Street Capital Markets -- Analyst
OK. That sounds good. And then how are you guys thinking about price increases for the rest of this year?
Chris Killoy -- President and Chief Executive Officer
Well, we're keeping an open mind to it. Obviously, we've seen a lot of inflationary pressures as Tom mentioned in his remarks. And some of our commodity prices are up significantly last year, and then the first quarter. And I should point out, we've taken three price increases over the last 18-months.
Each of those was about 3%, pretty much across the board. The exception being accessories were up a little higher than that. But, yes, we've tried to get some of that back through pricing remains to be seen based on the competitive market. We see out there whether we can do that going forward.
Ryan Meyers -- Lake Street Capital Markets -- Analyst
Great. That's all I have. Thanks, guys.
Operator
[Operator instruction] Our next question will come from the line Rommel Dionisio from Aegis Capital. You may begin.
Rommel Dionisio -- Aegis Capital -- Analyst
Thanks. Good morning. I want to ask about the product mix. I think, Chris, you referenced some of the products that are so particularly strong for you with the new products, but also your product mix that you were talking about.
Are you guys seeing in the industry? Not the industry is sort of coming back to a more normalized level. That's the categories that were pretty hot during the surge like MSR is in [inaudible] are starting to moderate. And is that just a Ruger-specific thing that you guys are seeing some strength, and those sort of dynamics are categories. Thanks.
Chris Killoy -- President and Chief Executive Officer
Thanks, Rommel. I think that there are some industrywide trends. I mean, obviously, the hunting category for set of fire, both actual rifle have stayed strong for Ruger, I think it's relatively strong for the industry. But you're right in terms of where we've seen some moderation of demand, particularly in the MSR category, and set a fire of pistols.
We are seeing some, I'll say coming off the highs that we saw the last couple of years. Those two categories will have accelerated the most, and they're kind of two categories that have decelerated the most as we've gone into 2022.
Rommel Dionisio -- Aegis Capital -- Analyst
OK. And maybe just a follow-up to the prior question on pricing. I wonder if I could just get your thoughts on the promotional environment, and also the competitive promotional environment. Mostly a lot of moving parts with the cost increases that you guys are facing.
Obviously, you're not alone in that. And at the same time, industry demand is somewhat decelerating, as you mentioned. And I just wondered what you guys are seeing from the competitive promotional front and how you want to respond to that. Thanks.
Chris Killoy -- President and Chief Executive Officer
Yeah. Good point. I mean, we went through first quarter with fairly, almost minimal promotional spend outside of our normal advertising campaigns and such. We did not have the deals that we had some years past.
You see some of those programs that have been out there that are very detrimental to margins. We didn't participate in really that in Q1 and haven't so far. We are seeing the promotional environment heat up. We're seeing more and more discounting.
We're seeing deals being cut by some of our competitors, some of which are published, some of which are not. And we're seeing more promotional rebates, and things like that offered to the consumer to try to move product. But so far, we're not seeing the really heavy-duty discounting of that is so detrimental to margins. But again, as we are in the summer months, we're just going to be mindful of that, watching our competitors, and seeing what plays out at the wholesale retail level.
Rommel Dionisio -- Aegis Capital -- Analyst
OK. Very good. Thanks so much.
Chris Killoy -- President and Chief Executive Officer
Thanks, Rommel.
Operator
[Operator instruction] Our next question comes from the line of Ryan Hamilton from Morgan Stanley. You may begin.
Ryan Hamilton -- Morgan Stanley -- Analyst
Good morning, guys. Morgan Dempsey. Could you walk us through the cadence of the quarter? I know sometimes you touch as far as your was the beginning of the quarter, still pretty strong, and then it tailed off, or was it kind of consistent through the whole quarter?
Chris Killoy -- President and Chief Executive Officer
Thanks, Ryan. I don't think it was a dramatic shift over the quarter. Some quarters you do see things like that. We definitely don't comment on monthly numbers.
But I think was fairly consistent throughout the quarter. This is a quarter that we saw things tapering off at the end of Q4 and last year, and then January was ok. We saw a slight decline in that, and that's pretty much how we finished out the quarter. So there wasn't a big trend up or down in Q1 that we saw anyway.
Ryan Hamilton -- Morgan Stanley -- Analyst
That's great. I mean, thanks for the color. On the commodity front, is it more of a matter of paying more for your commodities? Or is it just lack of availability where you just can't get something?
Chris Killoy -- President and Chief Executive Officer
Our supply chain teams have done a fantastic job being able to well go over every nook and cranny in terms of suppliers to get what we need. And because of a broad mix of product, we think we can shift and pivot. If we struggle with stainless steel in a particular line, we can move over that to alloy steel. But we're seeing some pretty heavy increases, things like stainless steel, we're seeing as high as 7% increases last year.
Alloy steel up 15%, aluminum up 20%. So those are some pretty heavy hits when you look at commodity prices, as well as things like freight costs and things of that nature. So we just have to keep watching it. But shout out to our supply chain guys and gals, they've done a wonderful job keeping us in stock, and keeping the lines running.
Ryan Hamilton -- Morgan Stanley -- Analyst
That's great. Comment on the workforce work. Where are you at as far as headcount? Where would you like to be?
Chris Killoy -- President and Chief Executive Officer
We're just [inaudible] of about 1900 people, where we still get to help want to sign up, particularly for engineers. We're trying to [inaudible] some of the lines, and make sure that as a particular line slows down, we're moving the people over as best we can to take advantage of what we have increased demand. So we're fairly stable right now. But again, offering a path still about what to sign out for associates, and certainly for engineers.
Ryan Hamilton -- Morgan Stanley -- Analyst
All right. [inaudible] for me, and I maybe I have missed it here. On the [inaudible] line, are you at full production?
Chris Killoy -- President and Chief Executive Officer
Well, that, none of our objective production, where we're very close to heading our current site operates on a daily basis. Sometimes we meet them, sometimes we beat them, but we'll be steadily ramping up that morale and production, particularly as we expand beyond the 1895 family. And in fact, you've got some exciting products in the 1895 family that you'll be seeing in the next couple of weeks, adding to the 1895 SPL. And then after that, you'll start to see things like the 1894 and the Model 336.
And once we get all those models into the mix, that'll get us to our target production levels.
Ryan Hamilton -- Morgan Stanley -- Analyst
I got it. The early reviews have been fantastic so keep up the good work, guys. Thank you very much for your time. That's all.
Operator
Thanks. And I'm not showing any for the speakers in the queue, any further participants in the queue. I like to turn the call back over to Chris for any closing remarks.
Chris Killoy -- President and Chief Executive Officer
Thanks, operator. I hope you will all be able to join us at the Virtual Planetoid two annual meeting on Wednesday, June 1st. Hopefully, you have had a chance to review our proxy statement and have voted your shares. If not, please be sure to do so as soon as possible.
Major recommendations are detailed in a proxy statement and are pretty self-explanatory. However, I do want to mention proposal four specifically. Proposal four is another shareholder proposal, the same folks who requested the safety report in 2018. As you may recall, we spent an enormous amount of time on that report, and explain in great detail all of the things we so proudly do to promote the safe, and responsible use, and ownership of firearms.
Well, these folks are not satisfied, and now we're seeking a so-called human rights impact assessment. As described in the opposition statement, contained in our proxy, we do not believe that the proposal is necessary or appropriate, and will only serve to harm the company to the detriment of our shareholders. Note that one only needs to hold $2,000 worth of stock for one year to submit a proposal. At about $7 per share, that's less than 30 shares of Ruger stock.
The proponents of the Ruger proposal are all members of the Interfaith Center on Corporate Responsibility or ICCR. ICCR members purchased stocks for the sole purpose of advancing their own agenda. In fact, as of February 16th, ICCR members sponsored 436 proposals. I can assure you that these folks, who on the bare minimum of our stock do not have the interests of Ruger shareholders in mind when advancing their own anti-gun agenda.
For all the reasons set forth in our opposition statement, which begins at page 26 of the proxy statement. The Board has recommended that you vote against proposal four. In closing, I would like to thank you for your continued interest in Ruger, and especially I would like to thank our loyal customers and almost 1900 hardworking members of the Ruger team who design, manufacture, and sell Ruger, reliable firearms every day in our American factories. Thank you very much.
Operator
[Operator signoff]
Duration: 23 minutes
Call participants:
Chris Killoy -- President and Chief Executive Officer
Kevin Reid -- General Counsel
Tom Dineen -- Chief Financial Officer
Ryan Meyers -- Lake Street Capital Markets -- Analyst
Rommel Dionisio -- Aegis Capital -- Analyst
Ryan Hamilton -- Morgan Stanley -- Analyst
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