Ruger discontinues Red Label & conference call

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Bear Paw Jack

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I saw this on another forum.

Yesterday's 2014 earnings call with Ruger CEO Mike Fifer was another of those revealing glimpses into why some public company CEOs dread question and answer sessions with stock market analysts. As an observer to the process, the frequent accounting and Wall Street jargon will remind you why you didn't go for an MBA.

But the analysts' sometimes pointed questions make you appreciative of the broad knowledge base any CEO for a public company must have - and call up on demand. It's not enough to know the industry, their company and its products. They have to be able to tactfully deal with analysts whose recommendations can impact their company's access to investment capital.

And it will help you appreciate there's a lot of studying of the industry, consumer trends and other variables that go into the manufacturing process -before the manufacturing process goes into gear.

In a nutshell, Ruger's 2014 performance didn't match 2013.

That's not saying the company didn't make money, just that Ruger is the latest company to affirm what everyone in the industry has known for some time: 2013 was one of those boom years that skews all your projections and forward planning- if you don't put it into historical perspective.

Put into perspective, 2013 isn't a fair comparison to 2014, but 2012 is. And by those standards, Ruger -and the industry- appears to be doing fine.

But that "fine" assessment wasn't without its bumps for Ruger. Fifer candidly stated that some of the shortfalls in sales in Q3 and Q4 '14 were the result in delays in new product introductions.

"So," an analyst asked, "are you looking for more research engineers?" After thinking a few seconds, Fifer responded that while Ruger had "a couple of open slots" he might be looking for Project Managers before engineers.

Reasoning? "Brilliant engineers might not be up on what he needs in his planning," Fifer mused, "he may need springs and discover that the spring supplier needs four months lead time. A Project Manager considers those things throughout the process and prepares accordingly."

The conference call also reminded me that while distributor shows are critical to the manufacturing side of the industry, they're not exactly the direct indicator of what gun makers can expect to sell in 2015. That's because the orders written at distributor shows are from retailers. Those orders don't directly translate to orders to manufacturing because of the distributors' own inventory. A distributor sitting on excess inventory is going to deplete that inventory prior to reordering. For a company like Ruger with broad and deep product lines, that's not such a frightening proposition. For some single-line companies, like small ones that only make modern sporting rifles, that may trigger a lot of incentive programs in order to encourage distributors to keep their stocks higher.

It bears mentioning that Ruger took a big chance several years ago when it fundamentally changed the its products were brought to market. Rather than announce a product with an availability date somewhere in the future, Ruger produced thousands of new products before they announced them. When they were announced, the actual products were available, not only to look at, but to purchase.

As Fifer explained, "that process ties up some of your capital and you have some of it just laying around- that happened to us in Q4 as we were getting ready to announce our new products." That, in turn, impacts your balance sheets- although the forward looking process he's championed has worked well to this point.

Ammunition supplies were also discussed, with Fifer telling listeners that while a major ammo manufacturer (ATK) and powder maker (unnamed) had invested millions in meeting the added demand for rimfire ammunition, there was a wild card in the supply-and-demand equation: the BATFE.

The ATF's decision to go after heretofore legal ball ammunition was characterized as "a bigger issue than sales" -heading the industry toward a "slippery slope" where we didn't need to go.

Analysts also have a way of opening topics that seem pure business, but also have a broader implication. Yesterday, one question concerned Ruger's "mini foundries". With two "minis" up and running, the question was "are you at the point you're considering closing your main foundry in Newport?"

If you're in the Newport business development business, that's a red flag. If you're an analyst, it's just another business process hypothetical. If you're the CEO of the company, it's a question that has more than one answer. "Interesting question," Fifer responded, "we're at the point we're considering what to do- do we expand the load on the mini-foundries and idle the main one, or do we invest in a third mini foundry- it's a question we're still looking at."

One unexpected note in the call, however, concerned Ruger's Red Label shotgun line. Revived in 2013, Fifer told callers that while he wasn't certain if it had officially been announced or not, the company had removed the Red Label from the 2015 catalog and the company website. "We'd hoped we could get it to a favorable point," he said, "but we didn't and we have discontinued the Red Label."
 

contender

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Having personally spoken with Mr. Fifer on several occasions, I can say I have been impressed with his knowledge and intelligence. I can also say that while I may disagree with some of his company decisions, I fully understand his explanations offered. (All except one. But that one was a small issue & not on his radar, so it's unfair to add it in my assessment of his abilities.)
I can say that if we look hard at his method of running Sturm, Ruger & Co. as stockholders, we can say we have enjoyed a profitable business due to his leadership.
Remember, first & foremost, they are in business to make money, the guns are the product to that end.

Kudos to Mr. Fifer.
 

Rick Courtright

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Hi,

I understand what Contender's saying, have been on both sides of the fence as a seller and a consumer, and am not surprised at all the Red Label will be gone. Ty's right that the goal of the business is to make money, and making guns or any other kind of product is not their end, but their means to do that. However, as a consumer, I will only buy those products which meet my needs or wants, and perform as I expect them to do. In Ruger's case, the gun IS my end.

Bill Ruger started the company with a single product. It did well. He expanded a little, and continued to do well. Then he went and messed things up by dying! Although some of the family remained with the company for a while, the die was cast. The company was already public, which meant the stockholders have to be fed first. And they are generally not particularly interested in how the company does what it does to make the money, as long as it "hits the marks" as it were.

Problem: a company can't make their sales predictions if people don't buy their products. In order to get them to do so, at least in the quantities required to keep all the number crunchers happy, those products must be available for purchase, reasonably close to NOW, not at some indeterminate date in the future, and they must work properly when they do become available in order to build up the kind of good reputation which will help foster more sales than simple advertising could ever hope for. "You can't sell apples out of an empty cart" goes the old saying, and not having top quality apples in the cart when one finally does fill it doesn't work so well, either. Ruger screwed the pooch on both issues in my opinion.

There was once a time when I was actually interested in a Red Label, perhaps simply out of curiosity, perhaps because of a desire to have an American made over-under, instead of the Belgian and Japanese guns I already had. But could I buy one, that day, or at least within a few days with an allowance for shipping, as I could those others, and many like them from a host of other manufacturers? No. And while I was waiting to see if one would mysteriously show up on the dealer's rack, I started hearing tales of problems with the gun, both from shooters and in our shop. The often heard advice to "Send it back, they'll make it right" has never set well with me: if I paid enough for someone to make it right the first time, why should I not get it right? The first time? I dropped out of that market...

And, while my individual purchase (or lack thereof) was neither here nor there to the company, it would appear there were were enough others who COULD have made the gun a successful "member of the Ruger family" yet shared my thoughts, both the first time the Red Label was offered, when I was interested, and with its recent rebirth, when I just yawned. As, apparently, did too much of the rest of the market. Brilliant CEOs, whiz kid MBAs, hyper vigilant stock analysts, and overworked accountants can juggle the numbers all they want. But until they go out in the street and ask people not only "Why did you buy my product?" but also "Why did you NOT buy my product?", juggling's little more than an exercise in chasing a rainbow.

The Red Label's just the tip of that iceberg. I wish Ruger luck; at the same time I can't fathom how they're gonna find it using the same methodologies that aren't working up to expectation...

Rick C
 

contender

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Good points Rick. I will say I have seen AND participated in actual surveys done by the folks at Ruger. At the SHOT Show, they did have several employees with actual surveys in hand to whit, they wanted feedback.
Next, you can go to their website, and "Ask the CEO." Having spoken with Mr. Fifer about this feature, he has told me he does read them all, but isn't capable of answering them all. (Time constraints.)

Yes, they do have to look at the numbers to satisfy the stockholders, (I'm one, but I don't own enough to where I get worried if I don't get a big dividend check.) And, look at what they have done with new models in the last few years. As noted above, they build a bunch BEFORE introducing them. I can easily recall Ruger, as well as many other companies introducing their latest & greatest, yet, none being available for 1-3 years. Have there been issues with some of the newest offerings? Yes. Until they get handled, shot, used & abused by the consumer monkeys, (myself included,) some problems just do not surface.
All in all, I too would enjoy knowing that Ruger could offer every different type of firearm, with their backing of "rugger, reliable" AND it be affordable to the average guy. But the stockholders do not like to see a lot of $$$$ spent & the return not cover the costs or make an expected profit. Any company can not keep spending more on any product & it not giving a profitable return.
A good example is the Security-Six series firearm.
I've heard it offered a lot that it cost more to make them than they had to sell them for. Bill wanted to hit S&W hard with a good solid DA revolver. And he did. But, if you can't make it profitable, you have to do something to fix that. Enter the GP & SP series. It's just good business. And, yes, Bill was in the position to absorb more loss than the current folks at Ruger.

We as consumers, (and we are all consumers, just some are wholesale & others are retail,) have to understand & accept some hard facts occasionally. Availability of a product, reliability of a product, costs of making products, etc are not always going to be what we wish they were. That's true with any company.
 

Rick Courtright

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contender said:
We as consumers, (and we are all consumers, just some are wholesale & others are retail,) have to understand & accept some hard facts occasionally. Availability of a product, reliability of a product, costs of making products, etc are not always going to be what we wish they were. That's true with any company.

Hi,

Understood, and agreed, Ty. What you're saying has been true as long as we've been a "consumer" economy, and is not going to change. Fortunately, I can still vote with my wallet on many purchasing "issues." And when one of those issues is guns, I've changed my registration from "Ruger" to "Independent" because of these very facts and often vote for "third party" products today, far more so than in the past.

"Compete or die." It should be the mantra of every CEO, with the understanding that "Company A competes with Company B" is only half the sentence. In full, it should read "Company A competes with Company B for MY money." Company A may die without my money, and probably far sooner than I'm likely to tip over without Company A's product. If there are enough of "me" in the marketplace, out they go. And if they do, someone else will try to fill in for them... remember how Bill Ruger got started? "Find a need and fill it well" has been good business advice since business began.

Nobody's gotta agree. That includes Mr. Fifer, who's already essentially told me, personally, "Sorry we lost you, but so what?", which I undoubtedly deserved, but he'd already lost me--perhaps a lot of "mes"?--long before then. I wonder if he's familiar with the old salesman's adage: "A happy customer tells one of his friends, an unhappy one tells ten?"

Rick C
 

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