Shooting Itself In The Foot,Vista Outdoor(VSTO) Picks Up Speed On Downward Trajectory

Investors are taking gun and ammo manufacturer Vista Outdoor(VSTO) out back and shooting it. Vista stock, which was above $50 in July 2016, was down nearly 30% last week after an awful earnings report, and now trades just over $14. The company, which was spun off in 2015 by Alliance Techsystems as part of its Morris Trust merger into Orbital ATK(OA), is suffering from crumbling sales, tumbling profit, and an oddly awful environment for gun stocks.

Just days after a user named “Imperial Dividends” touted the stock as a “value play” on Seeking Alpha, the company released third quarter earnings that were far worse than anticipated and cut guidance going forward.


For the second quarter ended October 1, 2017:

  • Sales were $587 million, down 14 percent from the prior-year quarter, including $12 million of additional sales from the acquisition of Camp Chef. Sales were down 16 percent on an organic basis.
  • Gross profit was $139 million, down 25 percent from the prior-year quarter. This includes $3 million of additional gross profit from the Camp Chef acquisition, offset by a 27 percent decrease in organic gross profit.
  • Operating expenses were $266 million, compared to $81 million in the prior-year quarter. This $185 million difference was primarily due to a $152 million goodwill and intangibles impairment in the current period, partially offset by a $30 million acquisition settlement gain in the prior-year period.
  • Fully diluted earnings per share (EPS) was $(2.01), compared to $1.22 in the prior-year quarter. Adjusted EPS was $0.34, compared to $0.74 in the prior-year quarter.
  • Cash flow provided by operating activities year to date was $109 million, compared to $10 million in the prior-year period. Year-to-date free cash flow generation was $77 million, compared to free cash flow use of $48 million in the prior-year period, primarily driven by inventory reduction initiatives.

Another Seeking Alpha user, Mark F. S., followed up earnings with a good analysis of the company’s results and why they are so bad.

Bottom line, I consider myself having knowledge about the firearms side of the business where Vista Outdoors declined 18.7% year over year in sales and 37.7% in gross profits. Even though I do participate in many outdoor activities and am a customer and an owner of a number of Vista Outdoor’s Outdoor Products brand’s products, in previous articles I stayed away from commenting. I hoped that the outdoor brands business would balance out the near-certain disappointment of the Shooting Sports division. Unfortunately, the Outdoor Products did poorly as well, with sales and gross profits down over 9% year over year.

The firearms brand may be the sinking boat anchor, but it is not the only thing dragging the company down it seems.

Where this becomes a major issue is in the massive debt the company owes, now at over $1 billion, surpassing the company’s entire market cap of $722 million.

 Can the new CEO and his proposed sales of a few units lower debt to a manageable level and return the business to profitability? Maybe, but there is little margin for error here for a company selling a commodity product to a wary market.
Disclosure: The author holds no position in any stock mentioned