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As Trump Rises, a Downturn for Ruger, Others

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    Republican presidential candidate Marco Rubio looks over the hunting rifle given to him during a visit to Sturm, Ruger & Co. Inc. in Newport, N.H. on Jan.15, 2016. Next to him is Timothy Lowney, director of operations at the facility. "I scored a rifle " Rubio said to employees at the gun plant. Rubio said he was already a handgun owner. (Valley News - Jennifer Hauck) Copyright Valley News. May not be reprinted or used online without permission. Send requests to permission@vnews.com. Jennifer Hauck

Valley News Business Writer
Published: 3/11/2018 12:42:03 AM
Modified: 3/11/2018 12:42:04 AM

Newport— It is an oddity of the firearms industry that the prospect of tighter regulation — a seeming nemesis for gun manufacturers — is good for business because it drives sales and boosts profits.

But when that threat recedes, as tends to happen when the Republican Party controls the White House, the industry goes into a downward slide.

Such boom-and-slump cycles is something Newport’s Sturm, Ruger & Co. has endured numerous times during its 69-year history. And this past year, with a president in the White House who extols the National Rifle Association as “great people” and “great American patriots,” wasn’t one of those banner years for Ruger.

Revenue and income are down. The company’s share price has declined. And companywide employment has been trimmed, although apparently not significantly at its Newport facility.

After having its second-best sales year in 2016, Ruger’s revenue fell 21 percent last year, and the publicly traded company’s earnings plunged 40 percent to $52.1 million, a drop that the company attributed to a sharp industry-wide decline in sales. Ruger’s stock price, which reached as high as $80 per share four years ago, dipped as low as $43 per share in February before recovering to around $50 per share last week.

“2017 was a challenging year for the firearms industry,” Ruger Chief Executive Christopher Killoy told security analysts matter-of-factly in a conference call in February.

But, he noted, the industry-wide decline in sales last year looked worse than it really was because of “stronger than normal” sales in 2016, which were “likely bolstered by the political campaigns for the November 2016 elections.”

Nonetheless, Ruger’s down year comes at an uncertain time for both the company and the industry. Gun manufacturers and sellers may be facing stiffer headwinds in the wake of the mass shooting at a Parkland, Fla., high school last month in which 17 people were killed.

While the threat of new regulations often works to the benefit of the industry by prompting panic buying, this time it’s coupled with the prospect of dampened enthusiasm for investment in the industry.

BlackRock, the New York private equity firm that owns 17 percent of Ruger’s stock through index funds and also has stakes in firearms companies American Outdoor Brands and Vista Outdoor, said earlier this month that it would give clients “a choice of products that exclude firearms manufacturers” and was reaching out to “major publicly traded civilian firearms manufacturers and retailers to engage in a discussion of their business practices.”

And on Friday, Republican Gov. Rick Scott, of Florida, a state long considered one of gun-friendliest in the nation, signed into law limits on access to guns that include raising to 21 the age at which a person can buy a gun and establishing a three-day waiting period.

How — and even if — those developments will affect Ruger’s business remains unclear. Ruger’s stock price fell after the Florida shooting but has since climbed back.

But the downturn in gun sales has already affected Ruger in one very visible way: The company has dramatically cut back the number of employees over the past year.

The sales decline forced Ruger to slow production, which in turn led the company to curtail its work force. Killoy disclosed to analysts that in the past 13 months Ruger’s “headcount decreased by approximately 700 people or 28 percent,” according to a transcript of the Feb. 22 conference call.

Ruger employed 1,838 people at the end of 2017, according to the annual financial report it filed with the Securities and Exchange Commission. In January, Ruger eliminated another 60 “indirect labor positions,” reducing the number of employees to 1,750 as of Feb. 1, its fewest number since 2012.

How many many jobs were eliminated at Ruger’s Newport plant is not known — the company did not break out job losses among its three manufacturing facilities in Newport; Mayodan, N.C.; Prescott, Ariz.; and at its corporate headquarters in Southport, Conn. Company officials in Newport did not respond to requests for comment. Newport is the largest of Ruger’s sites, employing between 1,200 to 1,300 workers before the latest round of worker cutbacks.

Ruger executives said they sought to limit the layoffs that would affect full-time workers by targeting part-time positions and not filling jobs when people voluntarily quit or retired.

“When we reduced production in 2017, we were mindful of the impact it would have on our people, operations and profitability,” Killoy explained to analysts.

“However, we had to make some difficult decisions. We developed a strategic plan focusing on not filling positions vacated through attrition and a reduction of overtime.”

Indeed, Ruger, which had 310 employees it classified as “temporary” as recently as 2016, reported it had only two temporary employees left by the end of 2017, according to its annual report.

Newport merchants, who usually get wind if there is a major change underway at the Ruger plant on Route 103, said that they had not felt any fallout from the reduced workforce, or are even aware of it.

“A lot of our business comes from employees at Ruger — including take-out and sandwich deliveries — and I haven’t noticed a decline in that yet,” said Joe Tuohy, co-owner of Salt hill Pub in downtown Newport. “I haven’t even heard any grumbling about less hours, and usually we’d hear it.”

To a great degree, Newport is a one-company town where nearly everyone knows someone at the company, Newport residents say.

“They’re one of the biggest focuses on our community for a lot of reasons,” said Todd Fratzel, chief engineer at United Construction in Newport and a member of the town’s Economic Development Corp. “We talk that if Ruger ever left Newport, it would be like one of those steel towns in Pennsylvania: It would cripple Newport not only from a tax base but also in lost jobs.”

As the last major legacy manufacturer in Newport — the town was once home to a range of manufacturers, including a woolen mill and a shoe factory — Ruger’s business is interwoven into both the area’s economy and culture.

Founded by in 1949 by Alexander McCormick Sturm and self-taught toolmaker William B. Ruger Sr., the company never acquired the public image like storied gunmakers Colt, Winchester and Remington, but always had a loyal following among gun enthusiasts for its rifles and pistols.

But by the early 2000s, Ruger had developed a reputation as a sleepy family company out of step with the industry — Ruger Sr. had advocated for the 1994 ban on high-capacity magazines of 10 rounds or higher, infuriating industry leaders — and one mostly favored by older hunters and sportsmen. The Newport factory, a warren of older drill presses and inefficient assembly lines, was considered as dirty as a coal mine.

Then in 2006, the board hired an outsider, Michael Fifer, a hard-charging manufacturing executive and Harvard MBA, to take over.

Fifer overhauled the company, introduced Japanese-style “lean manufacturing” techniques, and threw resources into research and product design. In 2014 Ruger opened a new plant in North Carolina, which the Winston-Salem Journal reported last month had 315 employees “at last count.”

After leading the company for a decade and overseeing a nearly fourfold increase in sales to $614 million, Fifer retired in 2017 and was succeeded by Killoy, the company’s chief operating officer who, like Fifer, is a military academy grad.

One notable shift this year under Killoy is that Ruger has dramatically curtailed the money it will spend to acquire new manufacturing equipment and on other capital expenses — last year it plowed back more than one-third of its approximately $100 million in cash flow into capital expenditures.

But Killoy told analysts that the relatively low $15 million Ruger was budgeting for capital expenditures in 2018 — less than half the previous year and only a third as much as in some recent years — was because the slowdown in production meant that more machines were freed up for use.

“We think those existing CNC machine tools will likely support what we need to do now,” he said.

A conservatively run company, Ruger has no debt and, unlike other gun manufacturers that cast themselves as “outdoor companies” and diversified into everything from barbecue grills to night optical equipment and sporting apparel, Ruger has remained almost exclusively focused on firearms.

Brian Rafn, an analyst who closely follows Ruger, said it is only to be expected that, after decades of soaring gun sales in the U.S., the industry is reaching a saturation level. Ruger has traditionally responded by continually developing new models and tweaks to existing models to keep sales percolating.

“With a cyclical business like guns, at some point you’re going to have a plateauing,” he said. He believes the company’s relentless emphasis on new designs serves to keep a baseline level of customers returning to the stores for the latest models.

Rafn gives Ruger an “A-minus” for managing the industry downturn and not becoming over-extended or seduced by a debt-laden private equity sale like its industry peers.

“They’ve stuck to their guns,” he said.

John Lippman can be reached at jlippman@vnews.com.




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