Good day, and thank you for standing by. Welcome to the fourth quarter 2021 Sturm, Ruger earnings conference call. At this time, all participants are in listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star zero. I want to hand the conference over to speaker today, Chris Killoy, Chief Executive Officer. Please go ahead.
Good morning, and welcome to the Sturm, Ruger & Company year-end 2021 conference call. I would like to ask Kevin Reid, our General Counsel, to read the caution on forward-looking statements. Tom Dineen, our Chief Financial Officer, will give an overview of the fourth quarter and 2021 financial results. I will discuss our operations and the state of the market. After that, we'll get to your questions. Kevin.
Thanks, Chris. We want to remind everyone that statements made in the course of this meeting that state the company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. It's 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 31, 2021, which of course we filed last night, and the Forms 10-Q for the first, second and third quarters of 2021. Copies of these documents may be obtained by contacting the company or the SEC, or on the company website at ruger.com/corporate, or of course, at 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 31, 2021, and our Forms 10-Q for the first three quarters of 2021, which also are posted to our website. Furthermore, the company disclaims all responsibility to update forward-looking statements. Chris.
Thanks, Kevin. Now Tom will discuss the company's 2021 results.
Thanks, Chris. For 2021, net sales were $730.7 million and diluted earnings were $8.78 per share. For 2020, net sales were $568.9 million and diluted earnings were $5.09 per share. The substantial increase in profitability in 2021 compared to 2020 is attributable to the increase in sales and production, the resulting favorable leveraging of fixed costs, including depreciation, engineering, and other indirect labor expenses, reduced sales promotional activities, and increased labor and other manufacturing efficiencies. For the fourth quarter of 2021, net sales were $168.0 million and diluted earnings were $2.14 per share.
For the corresponding period in 2020, net sales were $169.3 million and diluted earnings were $1.78 per share. Diluted earnings per share in the fourth quarter of 2021 were increased by $0.18 due to a reduction in the effective tax rate for the year, which was recognized in the quarter. At December 31, 2021, our cash and short-term investments, which are invested in U.S. T-Bills, totaled $221 million. Our current ratio was 43 to 1, and we had no debt. Our cash-laden, debt-free balance sheet will allow us to pursue acquisitions and other capital opportunities that may emerge.
At December 31, 2021, stockholders' equity was $363.7 million, which equates to a book value of $20.67 per share, of which $12.56 per share was cash and short-term investments. In 2021, we generated $172 million of cash from operations. We reinvested $29 million of that back into the company in the form of capital expenditures, primarily related to new products. We estimate that 2022 capital expenditures will be approximately $20 million, predominantly related to new product development. Our ability to shift manufacturing equipment between cells and between facilities improves overall utilization and allows for reduced capital investment. In 2021, we returned $59 million to our shareholders through the payment of dividends.
Our board of directors declared a $0.86 per share quarterly dividend for shareholders of record as of March 11, 2022, payable on March 25, 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 2021. Chris.
Thanks, Tom. 2021 was a great year for Ruger. We entered the year with virtually no finished goods inventory, so all the firearms sold in 2021 had to be manufactured in 2021. Our 28% increase in sales would not have been possible without the 30% increase in production at our factories. This 30% increase was achieved with a manpower increase of less than 10%. These manufacturing efficiencies gains drove a 109% return on net operating assets for the year, which is a remarkable feat. Our dedicated workforce accomplished this despite the highly publicized challenges of tight labor markets, transportation and supply chain issues, and COVID-19 obstacles that we experienced throughout the year.
Following a 44% increase in 2020, the sell-through of our products from distributors to retailers increased again in 2021, this time by 4%, despite the 12% reduction in the National Instant Criminal Background Check System background checks, as adjusted by the National Shooting Sports Foundation. The increase in the sell-through of our products compared favorably to the decrease in adjusted NICS background checks in 2021 and may be attributable to strong consumer demand for our products, increased availability of our products at the distributors and at retail as a result of our increased production, and the introduction of popular new products.
Led by the award-winning Ruger-5.7 pistol, the MAX-9 pistol, and the LCP MAX pistol, our new product sales in 2021 represented $155 million or 22% of firearm sales, an increase of $45 million from $111 million or 22% of firearm sales in 2020. As a reminder, derivatives and product line extensions of mature product families are not included in our new product sales calculations. We ended 2021 on a high note as we shipped the first Ruger-made Marlin lever-action rifles, the Model 1895 SBL chambered in .45-70 Government in December. During the past year, our team completed a thorough design and production review of the 1895, focused on ensuring the highest quality, accuracy, and performance standards.
Being a longtime Marlin fan, I knew that we needed to take our time and make sure that our reintroduction was nothing short of perfect. From the quality of the firearm to clear ways for consumers to differentiate Ruger-made Marlins, we focused on getting every detail right. I look forward to reintroducing many more Marlins in 2022 and in the years to come. Long live the lever gun. Our finished goods inventory remains significantly below pre-COVID-19 pandemic levels. Distributor inventories of our products increased 125,000 units in 2021, but remained below the level needed to support rapid fulfillment of retailer demand for most products. We have an expansive product line, which ranges from our versatile pistols to bolt action hunting rifles to our classic revolvers to Marlin lever-action rifles.
This provides some stability in the volatile firearms market, as we can reallocate our labor and machinery to prioritize the manufacture of products that are in strong demand while we replenish our inventories of models that appear to be in adequate supply in the distribution channel. Our ability to reallocate resources and our willingness to maintain appropriate levels of inventory strengthen us as demand ebbs and flows within the various diverse sectors of the industry. I'm excited as we enter 2022. We will remain disciplined and committed to our strategy of pursuing manufacturing excellence and vigorously developing innovative and exciting new products. We look forward to launching some of these new products under both the Ruger and Marlin brands in 2022. Those were the highlights of 2021. Operator, may we have the first question?
As a reminder, to ask a question, you will need to press star one on your telephone, and to withdraw your question, just press the pound key. Once again, that's star one for questions. One moment for questions. Our first question will come from the line of Ryan Hamilton from Morgan Dempsey Capital. You may begin.
Hey, good morning, guys. What a day to record or report annual record earnings.
Hi, Ryan.
Ryan.
Well, let's just dive in right away. You commented last quarter about ammo availability being an issue. Any comments on that front, what you're seeing, what you're hearing?
Ryan, good question. We are seeing better availability of ammunition, particularly in some of the core calibers like nine millimeter and five five six. I think that is improving, and I know the ammunition companies have all ramped up significantly. I think that is helping getting stocks a little closer back to the normal levels.
Great. Along those lines, you touched on NICS checks in your release. Do you think that product availability might be impacting or in a unavailability, I guess you could call it, is that impacting those numbers at all?
I think that could have been an impact earlier in 2021 and certainly 2020, but I don't think that's an impact now. I think by and large, we're seeing retail shelves starting to, you know, with the exception of certain categories, in particular for Ruger products like our revolvers, Hawkeye rifles, things of that nature, which are still in very tight supply, we are seeing a return to some more normal inventory at retail. But we still got a lot of outages that we're trying to get filled for our customers.
Great. On Marlin, you know, great job on the release on that. Without getting too specific, what does the margin profile look like for this rifle compared to some of your more legacy models?
Well, right now, you know, of course, it's in the ramp stage. We're still growing that line. Over time, we expect it'll be very similar to our other long gun lines, produced, you know, in the Mayodan factory. We're very comfortable where it started and where it's going.
Okay, great. You know, you touched on the commodity, you know, labor supply chain stuff. Anything of note there on the commodities?
No, I think.
Inflation.
Yeah, certainly we're seeing inflation across the board, as are most manufacturers. However, our supply chain team has done a great job working with our suppliers. We have taken several price increases over the past 18 months. I think we're seeing, you know, our ability and our strong balance sheet to buy forward our raw materials helps us both in terms of some of that protecting against inflation, as well as making sure we have available steel, aluminum, et cetera, to weather any downturns from the supply standpoint.
I'm sure it helps that you manufacture everything in the U.S. and source most of that stuff, so that's great. Any price increases scheduled out for the next, I don't know, six to nine months?
None anticipated. You know, it depends on, you know, if we see increased inflation on certain commodities, you know, that could change. Right now, we did just take a 3% price increase pretty much across the board on January 1.
Great. You know, I always enjoy that you touch on new product sales. Do you break that out for fourth quarter at all?
Well, typically we don't break that out too much, you know, in that great a detail, Ryan, below the new product category. I believe it was for the year 22%. I think it was pretty close to that for fourth quarter as well.
Okay, great. Last one from me, and then I can jump back in line here. Any comments on the Remington settlement?
No. You know what, Ryan, as you likely know, you know, we're not involved in that case, and I think it's important to recognize what the settlement was and what it wasn't. There was no finding of liability there. The case never went to a jury, and this was a decision by the insurance companies to settle. I really can't speak to their thinking on the matter.
Nope. My thoughts exactly. Thanks again, guys, and keep up the good work.
Thanks, Ryan.
Our next question will come from the line of Rommel Dionisio from Aegis Capital. You may begin.
Thanks very much, and good morning. Just a question.
Hi, Rommel.
On gross margins. You know, you had some nice sequential progress in gross margins. Given, so I think you touched on this a little bit, but given some of the headwinds in terms of raw materials and shipping, I wonder if you could just maybe give us a little granularity on what drove such, you know, solid gross margin, 37.7%, I think. Was it mix shift or new products, something else going on there? Thanks.
Well, you know, when you get that volume, you're covering a lot of that, the fixed overhead and, you know, that's one of the biggest contributors. Our new products were a big factor. Things like the Ruger-5.7 pistol, the MAX-9, and the LCP MAX were all very solid performers for us. I think that, you know, beyond that, the level of, you know, the price increases we took last year and then, you know, going into the fourth quarter helped us some as well. I think there was a, you know, lots of good things happening in terms of driving that gross margin, most of which really I attribute to the good work of our folks in the factory. They did a phenomenal job.
It's not just the big factors like price increases and commodity costs. It's really, you know, their constant effort on continuous improvement, daily Kaizen, taking cost out and taking waste out has really been a big factor in those gross margin numbers.
Great. Okay. Maybe just one quick follow-up. You know, I think in the prior conference call, you guys had chatted about the expansion of your North Carolina facility and some of the supply chain things you were doing. I wonder if you could just give us an update on how that's progressing and where you are there. Thanks.
Yeah. The Mayodan facility in North Carolina has had the lead on our Marlin production, although we've had folks from all three of our locations assisting in that. That's where we located the Marlin assets, and the 1895 is built right there in our main factory in Mayodan. We recently leased another facility nearby, about the same square footage, essentially doubling our square footage down there in North Carolina. That gives us opportunity to move our finished goods over there, move our call center there, and it'll allow us to put additional production lines in that facility. I think it bodes well for Ruger and, you know, especially with Marlin.
We've got the 1894 coming, the 336, and then some of the other product line expansions and new product initiatives we have. I think, you know, that'll be a great facility for us, and it's a great workforce, as are all our locations. I think that'll pay dividends in the future.
Great. Thanks very much, and a solid quarter. Thanks.
Thanks, Rommel.
Once again, that's star one for questions. Our next question will come from the line of Mark Smith from Lake Street Capital Markets. You may begin.
Hey, good morning, guys.
Good morning, Mark.
Hey, my first question is, I just wanted to talk about production a bit. You know, did you guys in Q4, you know, maybe take any more holiday time off, or were there COVID issues that impacted the quarter? Just looking at production coming down a little bit sequentially.
Well, I mean, part of that is, you know, certainly COVID was a factor in Q4, no doubt about it. We also made. There were a couple of lines that we, you know, adjust our SIOP rates, our sales inventory operations planning. We tend to think about our product lines in terms of units per day. While a couple new product lines were ramping up, there were one or two legacy lines that we did throttle back a little bit on production, partly to manage labor and just make sure we weren't gonna oversupply anything going into the market.
Okay. That leads to the next question. You know, orders and pricing, you know, in our view, still look really pretty solid. You know, can you talk about what you're seeing in regards to demand today?
Well, we try to focus less on the incoming order rates than we do on what's outgoing from our distributors. We have good visibility into what our distributors are shipping to retailers, and that's the barometer we use for our planning purposes, watching what they're shipping to retailers. That still looks good. It's you know it's not where it was say a year ago at this time, but it's very solid and it's across the board. We're seeing good strength from our distributor sell-through, as we refer to it, their distributor sales.
I think as we go forward, we'll continue to watch that and we adjust our production, you know, every two weeks just to make sure we're trying to get distributors and retailers what they need, and at the same time, making sure we don't produce too many things that they're not looking for. You know, the diversity of our product line, which we touched on earlier, really helps us in that regard because, you know, we've got some categories where we frankly underdelivered over the past year and a half, things like our double-action and single-action revolvers that we need to focus some more on. We've also got, you know, things, you know, like our legacy product lines, like our Hawkeye rifles, No. 1 rifles, things of that nature.
Again, not giant needle movers, but products that are much in demand that I get emails from consumers looking for those guns all the time. It gives us an opportunity to fill in some of those holes in the inventory at retail and wholesale level.
Yeah, and that's kinda my next question. You know, as we watch these shipments from distributors to retail, you know, as well as some of the incoming orders, you know, how should we watch, you know, from the outside, you know, to make sure orders don't get too high, you know, the inventory levels are at a healthy place, you know, so we don't see an overbuild similar to what we saw in kind of late 2016, 2017?
Yeah, good point. Again, you know, all of our orders that we receive from our wholesalers are non-cancellable orders. That doesn't mean that we just ship regardless of what the situation is from an inventory standpoint. We watch very closely what they have in inventory. We watch what they're selling, and we keep an eye on that, and that feeds into how we run our business. Even though they're non-cancellable orders on our books, it doesn't mean we just you know disregard what's going on in the marketplace and what's going on with their inventories to try to keep them healthy and keep their retailers healthy.
That's great. The last one for me, you know, we've talked a lot about new products, you know, and the pure number of new products sold has been really solid. You know, can you give any insight into kinda how you view that metric as we move into 2022? You know, with Marlin, you know, would you expect that to skew higher, or do you have some products that are maybe rolling off kind of a two-year, you know, I think Wrangler maybe rolls off and some other products, in your outlook for new products as far as revenue coming from that?
Yeah, a good point or good question, Mark. I mean, Wrangler has rolled off, as has, in this quarter, the Ruger-5.7 will roll off. I mean, those are things because of our strict metric that we use, that two-year horizon, even though those sales remain strong and, great profit generators, we don't count it after two years. We've got some new things coming, and I'm sure they'll be contributing. You know, that'll be the biggest thing is what new products are in the hopper that obviously we're not gonna talk about today, but there are some good things coming, and we're excited about it. Our engineers are working very hard. We've got some dedicated teams in all three facilities really working on some cool things to bring to market.
Excellent. Thank you, guys.
Thanks, Mark.
Once again, that's star one for questions. One more for questions. I'm not showing any further questions in the queue. I'd like to turn the call back over to Chris for any closing remarks.
Thanks, operator. In closing, I would like to thank all of you for your continued interest in Ruger, and I would like to thank our loyal customers and our over 1,900 hardworking members of the Ruger team who design, manufacture, and sell rugged, reliable firearms every day in our American factories. I hope you will be able to join us at our virtual 2022 annual meeting on Monday, May 9th. Further details of that meeting will become available in early April. Thanks once again.
This concludes today's conference call. Thank you for participating. You may now disconnect.