Good day, and thank you for standing by. Welcome to the Q2 2022 Sturm, Ruger Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Killoy, President and CEO. Please go ahead, sir.
Good morning and welcome to the Sturm, Ruger & Company second quarter 2022 conference call. I'd 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 second quarter of 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?
Thanks, Chris. We wanna 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 31st, 2021, and of course, on the Form 10-Q for the second quarter of 2022, which we filed 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 of course, 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 Form 10-Q for the second quarter of 2022, both of which are posted to our website. Furthermore, the company disclaims all responsibility to update forward-looking statements. Chris?
Thank you, Kevin. Now Tom will discuss the company's second quarter 2022 results.
Thanks, Chris. For the second quarter of 2022, net sales were $140.7 million, and diluted earnings were $1.17 per share. For the corresponding period in 2021, net sales were $200.1 million, and diluted earnings were $2.50 per share. The second quarter of 2021 was the highest quarter in sales and profitability in our history. For the first six months of 2022, net sales were $307.2 million, and diluted earnings were $2.87 per share. For the corresponding period in 2021, net sales were $384.4 million, and diluted earnings were $4.66 per share.
The significant reduction in sales from last year reflects decreased consumer demand for firearms from the unprecedented levels of the surge that began in early 2020 and remained for most of 2021. Our profitability declined in 2022 from the unfavorable de-leveraging of fixed costs resulting from the aforementioned decreased sales and production, plus inflationary cost increases in materials, commodities, services, energy, and transportation, partially offset by increased pricing. At July 2nd, 2022, our cash and short-term investments totaled $209 million. Our short-term investments are in a money market fund that invests exclusively in United States Treasury instruments which mature within one year. Our current ratio was 6.1: 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.
At July 2nd, 2022, stockholders' equity was $387 million, which equates to a book value of $21.90 per share, of which $11.80 per share was cash and short-term investments. During the first six months of 2022, we generated $32 million of cash from operations. We reinvested $14 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 six months of 2022, we returned $27 million to our shareholders through the payment of dividends.
Our board of directors declared a $0.47 per share quarterly dividend for shareholders of record as of August 17th, 2022, payable on August 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 second quarter. Chris?
Thanks, Tom. Our broad and diverse product family helped us navigate through the H1 of 2022 as overall consumer demand subsided. While channel inventory of some of our product families, including certain polymer pistols and modern sporting rifles, have been largely replenished, inventories of many product families remain below desired levels. We continue to focus our production mix and prioritize the products that remain in demand, many of which remain undersupplied in the marketplace. These include Ruger American centerfire rifles, 10/22 rimfire rifles, precision rifles, pistol-caliber carbines, LCRs, SR1911s, our single action and double action revolver families, and of course, our Marlin 1895 lever-action rifles. I am excited about the progress that our new product development teams have made this year. As you know, we don't talk about new products until they are launched, but stay tuned.
We are excited to continue to expand our Marlin product line with the reintroduction of the Marlin Model 1895 Trapper. This lightweight stainless steel lever-action rifle is chambered in .45-70 and features a very accurate cold hammer-forged threaded barrel. We continue to increase our production of Marlin rifles and look forward to introducing additional Ruger-made Marlin lever-action rifles in the near future. Sales of new products, including the PC Charger, the MAX-9 pistol, the LCP MAX pistol, and the Marlin 1895 lever-action rifle, represented $33.8 million or 11% of firearm sales in the first six months of 2022. As a reminder, derivatives or product line extensions of mature product families are not included in our new product sales calculation.
Several popular firearms that were considered new products in 2021, including the Wrangler revolver, the Ruger-5.7 pistol, and the LCP II in .22 Long Rifle, have now been in production for over two years and are no longer included in the new product sales calculation for the H1 of 2022. Those firearms continue to sell well for us. They are just no longer captured in the new product metric. As I mentioned earlier, stay tuned for some exciting new products in the back half of the year. We will remain disciplined and committed to our strategy of pursuing manufacturing excellence and vigorously developing innovative and exciting new products. Those are the highlights of the second quarter of 2022. Operator, may we have the first question, please?
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile a Q&A roster. Our first question is from the line of Mark Smith with Lake Street. Your line is now open.
Hey, good morning, guys. First question for me is, you know, the orders looked pretty solid. Backlog remains pretty high. You know, but production declined pretty significantly as we look at it sequentially. You know, was that planned, or were there any production issues, labor shortages, anything that kinda drove production down during the quarter?
Mark good question. You know, certainly, you know, labor and supply chain issues are something our teams are faced with every day. Frankly, we made the decision to moderate our production, bring it down in several product families based on what we saw and what we call distributor sell-through. When we see what our distributor's inventory looks like, we see what they're selling to retail and what's going on in the marketplace, we proactively take those production rates down. You may recall, we have our SIOP meeting, sales inventory operations planning meeting every two weeks. At each one of those meetings, we typically move some families up in production levels, some down. In this case, over the course of the H1 of the year, there were several that went down in production, and that was indeed planned.
You know, looking at that distributor sell-through, as we look at the backlog numbers, you know, how firm is that backlog? You know, could we see cancellations, or is there a situation, you know, where you guys could decide, you know, "Hey, we're not going to fill some of these, you know, aged back orders?".
Well, you know, our orders with our wholesalers are all non-cancellable, so those orders can't be canceled by the individual distributor. However, we're very cautious to make sure we're not overloading a distributor with a particular product line. As we see, looking at their inventory, we make the decision perhaps not to ship what's on backorder only because, again, we don't want to burden them and get them in financial trouble if they're already deep in a particular model, particular SKU, et cetera. It's a two-way street. We watch that backlog, but again, it is non-cancellable. Everything in that backlog ships at the current price. Even if it's been on there for a while, it's gonna ship at today's price, not at the price it was entered at the time those orders were placed.
Okay. As we look at the, you know, inventory, we're back to kind of pre-pandemic as we look at kind of, you know, your inventory and distributor inventory. You know, what's your comfort level with what you're seeing out there, kind of from retail all the way back through you guys as far as inventory?
Yeah. I mean, right now, from what's in the channel and our inventory in particular, we're very comfortable. Our distributors have settled into around, you know, our target of 6 turns is what we estimate, and we think they're right on track with that. Frankly, they're looking and asking for more inventory, particularly in some of the product lines, like I mentioned on the earlier remarks, things like 10/22s, double and single action revolvers, our Mark IV pistols and of course, Marlins. Every call, somebody's asking, "Can we get more Marlins?"
Okay. That's kinda my next question. As we look at gross profit margin, you know, obviously a year ago, very high margin, you know, as things were really humming, you know. Where do you see kind of that gross profit margin settling in as the industry's kind of normalized? Then walk through any maybe delta in that, given the Marlin business, how that looks on a gross profit margin basis.
Well, Mark, as you know, we don't break it down into the product line gross margins, and, you know, we don't provide forward-looking guidance. I would tell you the folks in Mayodan and particularly in particular are doing a great job getting the Marlin line up and running. As we add more SKUs, of course, you know, those are not without their own challenges, but they're steadily increasing production, so I think that'll help us throughout the year. I think the biggest thing when you look at our gross margin numbers overall is deleveraging of fixed costs. I mean, as we saw, compared to a year ago this time, you know, remember, that was, you know, the single highest quarter in terms of sales and profit in the company's history.
We've got very tough comps going back to second quarter of 2021. I think the vast majority of that decline in gross margin is attributable to that deleveraging of those fixed costs.
Maybe a different way of asking the question. Is there any reason that, you know, gross profit margins should differ significantly from pre-pandemic levels?
You know, a lot of that depends on what we can do with pricing. You know, we've taken three price increases since the onset of the pandemic over the course of that time period. You know, along the way, we're continuing to be hit with increase in material costs, freight, transit costs. You know, part of that will depend on what we can do in the way of price increases going forward.
Okay. Great. Thank you guys.
Thank you. Our next question is from the line of Rommel Dionisio from Aegis Capital. Your line is now open.
Thanks very much. Good morning. Chris, in your prepared comments, you talk about the Marlin business a little bit. It sounds like you're pretty excited about it. Now that you've had that business several quarters, I wonder if you could just drill down and give us a little more granularity in terms of what you've seen in that business since the acquisition. Obviously, you launched a major new product entering the lever-action and maybe the outlook for that going forward. What have you really changed in the business since you've acquired it from a production standpoint, from a marketing standpoint, maybe a little glimpse into the future to the extent that you can there? Thanks.
Yeah. Thanks, Rommel. Like I said, the whole company rallied behind the Marlin acquisition. We had teams from all three of our major factories involved in getting that line up and running. The production itself of the rifles takes place down in Mayodan, North Carolina. For example, our woodworking facility in New Hampshire makes the stocks for those guns. You know, all of them have been focused on delivering exceptional quality. We've really focused on quality over quantity. We're certainly. I know there's a lot of customers out there who want to see a higher volume of production from us, but we're not gonna sacrifice quality. We had to get it right coming out of the gate.
You know, so far, the 1895 SBL and now the Trapper and some of the other models in that 1895 family planned, and then later this year, you'll likely start to see things in the 336 and the 1894 family. All of that is in the future. All those are the centerfire lever action rifles, and they're all part of our product plan going forward. As we roll those out, the first time we had a chance to display those was at the NRA annual meetings in Houston a few weeks back. Again, they were the belle of the ball.
I mean, when we put out one of the new Marlins, I love to hear from the older customers and folks who are familiar with the evolution of the Marlin product line, and they're delighted with what they've seen. In fact, some of the former Marlin salesmen, when we first rolled out those guns, were super excited to see what we kept in the guns from a branding standpoint, that we keep the Marlin name. We've got the, you know, really great attention to detail. So far, I think those guns have proven themselves with our public retailers and wholesalers. I think you're gonna see more of that.
Again, if you saw our booth at the NRA show was really at the Marlin branding as well as the Ruger branding. As we go forward from a marketing standpoint, you'll continue to see the Marlin brand out there, but as part of Ruger. You know, we're excited about that. We think long term, it's gonna be great. Right now there's still some product lines that we're still looking at and working on. They're not as much a priority, things like the Model 60. In the meantime, you know, we'll take a look at that and move forward as it makes sense. The focus has been on those centerfire lever action rifles. Really, we're just scratching the surface at this point.
Great. Thanks very much, Chris.
Thank you. As a reminder, if you would like to ask a question, please press star one one. Our next question is from the line of Jim Missaga from FactSet. Your line is now open.
Hey, good morning, guys. Most of my questions have already been answered here, but per usual, I usually ask if you can walk us through the cadence of the quarter, kind of what you're seeing there, and maybe touch a little bit more on the inflation getting better, getting worse, staying the same, you know, any relief there. Thank you.
Sure. You know, as you know, we don't break out, you know, the monthly statistics and figures, but, you know, I would say we're in a much more normal summer season. As those of you that follow the industry know, typically we do slow down as you enter into May, June, July time period. The other thing is, you know, again, we like many other manufacturers, take a shutdown in July, and it's a one-week shutdown. As we came into the summer, we did see some slowing of retail traffic. The good news is, things associated with the fall hunting season seem to be coming on strong now.
We're seeing a lot of interest in our American centerfire rifles, and we see that as very positive. The question about inflation, I mean, we've seen some significant increases over the past couple of years. You know, things like stainless steel up 7% from last year, carbon steel up 15%, and aluminum up 20%. Some of those are tough to stomach and are a factor in, you know, not only us trying to drive efficiencies through our lean business practices in every aspect of Ruger, but also looking at potential price increases. We just have to keep that in mind as we go forward.
Awesome. Thanks. At least from what I'm seeing in my universe here, ammunition seems to be more available. Is that helping or hurting you guys at all? I would assume that's helping. Any comments on that?
I think it is helping. We've seen ammunition settle back down. Still in strong demand, but we've seen that settle back down from an availability standpoint. I think that gets the good thing for Ruger is it gets our customers out to the range. It gets them out enjoying their products. Things like, you know, a 10/22 and a Ruger Mark IV pistol are meant to be shot and enjoyed. You know, we're seeing, I think as those prices stabilize and consumers are comfortable that they can find ammo on the shelf, they're getting back out to the range and enjoying our products. That's always good news for Ruger when you have some of the fun-to-shoot platforms that we have.
Oh, absolutely. I think, you know, when you go to buy a new gun, it'd be nice if you had ammo that you can, like you said, you could take to the range. Any comments on your accessories business? I know it's a small piece, but, any thoughts there, what you're seeing?
Well, I think, you know, the accessories tend to run in parallel largely with our firearms business. As people are buying those firearms, as that new firearm is purchased, a lot of times they come into our website, ShopRuger, to look for accessories to go with their particular gun that they want. We see a lot of parallels there. Our team has done very well trying to keep up with demand for things like magazines and the on-gun accessories, as well as some really cool things in the apparel and sportswear side. I think that's stable. Again, we saw it run up, you know, with some of the gun business, and especially compared to Q2 of last year, that business was exceptionally strong.
Again, one of the toughest, probably the overall toughest comp we've ever had, but same thing for accessories. That was a tough comp for accessories also.
No, absolutely. Well, thanks for the time. Appreciate it.
Thank you.
Thank you. I would now like to turn the call back over to Chris Killoy for closing remarks.
In closing, I would like to thank you for your continued interest in Ruger, and I would like to thank our loyal customers and our 1,900 hardworking members of the Ruger team who design, manufacture, and sell our rugged, reliable firearms every day in our American factories. Thank you.
Thank you. This does conclude today's conference call. Thank you for participating, and you may now disconnect.