What Investors Think About Ammo Maker Vista Outdoor’s Earnings

August 8, 2019 by Paul Ausick

Vista Outdoor Inc. (NYSE: VSTO) reported first-quarter fiscal 2020 results before markets opened Thursday. The ammunition and outdoor products company posted an adjusted diluted loss per share of $0.08 on revenues of $460 million. In the same quarter a year ago, Vista reported that it broke even on revenues of $529 million. The consensus estimates for the most recent quarter called for a loss of $0.06 per share and $464 million in revenue.

For the end of the latest quarter, Vista reported noncash impairment charges on held-for-sale items of $9.43 million ($0.16 per share), compared with items held in the same period last year valued at $44.92 million ($0.78 per share). Last year’s impairment charge was related to Vista’s sale of its eyewear business.

Those adjustments blur a 16% year-over-year drop in gross profit. Operating expenses of $100 million include a $9 million impairment charge related to the company’s sale of its Savage and Stevens firearms brands. Free cash flow for the year to date tumbled from $70 million a year ago to a negative $45 million this year.

Vista sold its Savage firearms division in early July for $170 million, of which $158 million was paid at closing, cash the company used to pay down $150 million of long-term debt. At the end of the first fiscal quarter, Vista’s long-term debt totaled $740 million, a year-over-year increase of $156 million. Since the end of the quarter on June 30, the total has dropped to $590 million.

In its guidance for the 2020 fiscal year, Vista now projects sales in a range of $1.79 billion to $1.89 billion, down from a prior range of $1.94 billion to $2.03 billion. The earnings per share (EPS) projection has been slashed from $0.28 to $0.38 to a new range of a net loss per share of $0.03 to EPS of $0.12. Projected free cash flow has dropped from a range of $55 million to $65 million to a new range of $30 million to $40 million.

CEO Chris Metz said:

While we continued to see softness and challenges in our markets in the first quarter of Fiscal Year 2020, I remain confident in our plan to restore our brands to greatness.  We are mitigating unprecedented challenges while making continued progress to a more growth-centric Vista Outdoor.

Ammunition sales dropped by 1.5% year over year to $214 million, a decline that can be attributed at least partly to seasonality. In its 2019 fiscal year concluded in March, Vista generated 52% of its total sales from ammunition. Ammo sales fell 9.6% year over year in the 2019 fiscal year from $977 million in 2018 to $883 million. Total sales dropped more than 8% in the fiscal year, from $1.79 million to $1.64 million.

The company did not provide fiscal second-quarter guidance. Analysts are projecting EPS of $0.09 on sales of $483 million. In the second quarter of the previous year, EPS totaled $0.05 on sales of $547 million.

Mass shootings such as those in El Paso and Dayton last weekend always weigh on shares of gun and ammo makers from investors fearing tighter federal regulation. After a period of thoughts and prayers, share prices typically recover. Will 31 deaths make a difference this time?

Vista’s shares closed down about 0.8% on Wednesday, at $7.39 in a 52-week range of $6.75 to $19.41, and traded down more than 5% in Thursday’s premarket at $7.01. The 12-month consensus price target is $11.40, a level that is almost certainly out of touch with reality.