Low Expectations For Sturm, Ruger & Company's Earnings: Why A Beat Is Unlikely

Shares of Sturm, Ruger & Company RGR rose a tad on Monday morning, as the firearms manufacturer prepares to report its first quarter financial results after the market close.

According to Estimize, both the Street and the crowd expect to see a year-over-year decline of almost 50 percent in earnings – and a marked fall in revenue, too. The former models EPS of $0.64 on revenue of $121.3 million, while the latter projects EPS of $0.72 on revenue of $127.87 million. The first quarter of 2014 registered earnings of $1.22 per share on revenue of $169.88 million.

The consensus estimates, however, imply some growth from last quarter’s EPS of $0.53.

The graph below displays Sturm, Ruger & Company’s history of actual earnings versus estimates. As it can be seen, there is no clear trend; the company sometimes beats consensus, while sometimes it misses it. However, the last two quarters saw large misses, so expectations for this quarter are somewhat low.

It is also possible to see how the Street and the crowd’s to sentiment has evolved over time.

As evidenced by the chart above, Wall Street analysts pretty much maintained their opinion over the past several months. However, the crowd has been becoming increasingly bearish over the past couple of weeks.

Why A Beat Is Unlikely

A recent Zacks article suggests that Sturm, Ruger & Company is unlikely to beat earnings. The note points out some factors at play:

“Firearm companies like Sturm, Ruger & Company and Smith & Wesson Holding Corporation (SWHC) have been hit by low demand for weapons, as the earlier rush to possess firearms triggered by the fear of tighter regulations has ebbed to a large extent. Sturm, Ruger experienced persistently weak demand for its products, as was evident from the 20.9% year-over-year decline in sales in 2014.
It is worth mentioning that the FBI's National Instant Criminal Background Check System (“NICS”) showed a 9.1% decline in permit applications in calendar Q1 compared with the year-ago quarter. Though one cannot draw a one-to-one co-relation between the NICS report and the number of firearms sold, any upward or downward movement of firearm background checks is likely to have a similar impact on firearm sales.”