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Sturm, Ruger & Company (NYSE:RGR)
Q4 2017 Earnings Conference Call
Feb. 22, 2018 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies gentlemen, and welcome to the Q4 2017 Sturm Ruger Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will be given at that time. If anyone should require assistance during the conference, you may press *, then 0 on your touchtone telephone.

As a reminder, this call is being recorded. I would now like to introduce President and Chief Executive Officer Mr. Chris Killoy. Please go ahead, sir.

Christopher Killoy -- President and Chief Executive Officer

Good morning and welcome to the Sturm Ruger and Company Year-End 2017 Conference Call. I would like to ask Kevin Reid, our general counsel, to read the caution on forward-looking statements. Then, Tom Dineen, our chief financial officer, will give an overview of the fourth-quarter and 2017 financial results. And then I will discuss our operations and the state of the market and then we'll go to your questions.

Kevin?

Kevin Reid -- Vice President and General Counsel

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 is 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, 2017, and of course on the forms 10-Q for the first, second, and third quarters of 2017.

Copies of these documents may be obtained by contacting the company or the SEC, or on the company website at www.ruger.com/corporate or the FTC website at www.ftc.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, 2017, and our forms 10-Q for the first three quarters in 2017, which are also posted to our website. Furthermore, the company disclaims all responsibility to update forward-looking statements.

Chris?

Christopher Killoy -- President and Chief Executive Officer

Thank you, Kevin. Tom will now discuss the company's 2017 results.

Thomas Dineen -- Senior Vice President and Chief Financial Officer

Thanks, Chris. For 2017, net sales were $522.3 million and diluted earnings were $2.91 per share. For 2016, net sales were $664.3 million and diluted earnings were $4.59 per share. For the fourth quarter of 2017, net sales were $118.2 million and diluted earnings were $0.59 per share.

The recently enacted Tax Cuts and Jobs Act positively impacted earnings by $0.03 per share. For the corresponding period in 2016, net sales were $161.8 million and diluted earnings were $1.10 per share. Our 2017 EBITDA was $112 million, or 21% of sales. And our 2016 EBITDA was $171.4 million, or 26% of sales.

For the fourth quarter of 2017, our EBITDA was $22.6 million, or 19% of sales, compared to our fourth quarter of 2016 EBITDA of $42.5 million, or 26% of sales. The balance sheet. On December 31, 2017, our cash totaled $63 million, our [Inaudible] ratio was 3.2 to 1, and we had no debt. On December 31, 2017, stockholders' equity was $230.1 million, which equates to book value of $13.21 per share, of which $3.54 per share was cash.

Cash flows. In 2017, we generated $101 million of cash from operations. We reinvested $34 million of that back into the company in the form of capital expenditures. We estimate that capital expenditures in 2018 will be approximately $15 million.

Our primary focus for investment will continue to be new product development. Cash return to shareholders. In 2017, the company returned $89 million to our shareholders through the payment of $24 million of dividends and the repurchase of 1.3 million shares of our common stock at an average price of $49.10 per share, for a total of $65 million. On December 31, 2017, $31 million remained authorized for future stock repurchases.

Since November 2016, we have repurchased 1.6 million shares, or 8.4% of the outstanding shares. Given our practice of paying 40% of our net income as dividends, the reduction and outstanding shares will not only benefit our earnings per share, it will also directly benefit our dividends per share. Our board of directors declared a $0.23-per-share quarterly dividend for shareholders as of March 15, 2018, payable on March 30, 2018. As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies quarter to quarter.

That's the financial update for 2017. Chris?

Christopher Killoy -- President and Chief Executive Officer

Thanks, Tom. First, I'm going to talk about demand. 2017 was a challenging year for the firearms industry. For 2017, the estimated sell-through of our products from the independent wholesale distributors to retailers decreased 17% from 2016.

During this period, the National Instant Criminal Background Check System, or Background Checks, as adjusted by the National Shooting Sports Foundation and commonly referred to as adjusted NICS checks, decreased 11%. The decrease in estimated sell-through of the company's products from the independent distributors to retailers is attributable to 1) decreased overall consumer demand in 2017 due to stronger-than-normal demand during most of 2016, likely bolstered by the political campaign for the November 2016 elections; 2) reduced purchasing by retailers in an effect to reduce their inventories and generate cash; 3) aggressive price-discounting and lucrative consumer rebates offered by many of our competitors; and 4) increased industry manufacturing capacity, which exacerbated the above factors. New product development. We believe that the new products are the key driver of demand.

New products represented $137.8 million, or 27% of firearms sales in 2017, compared to $192.6 million, or 29% of firearms sales in 2016. In 2017, new products included the Precision Rifle, the Mark IV pistols, the LCP II pistol, and the American pistol. In December of 2017, the company introduced the Pistol Caliber Carbine, the Security-9 pistol, the EC9S pistol, and the Rimfire Precision rifle. Due to the timing of these launches, these new products had only a minimal impact on the 2017 results.

In 2017, we shipped over 800 unique models in over 40 major product families. Keep in mind we only have approximately 380 catalog models. So more than half of the models that we shipped last year were non-catalog models. These were derivatives with existing models featuring a different caliber, barrel length, or finish.

Some of these distributor exclusives have been offered for many years due to the continuing strong demand, while others were new in 2017. Regardless, these derivatives are not included in our new products sales total because we only include major new products that were introduced in the past two years. It's a pretty tough standard but it helps us focus on the significant breakthrough new products. Production and inventory.

We review the estimated sell-through from the independent distributors to retailers, as well as inventory levels at the independent distributors and in our warehouses, semi-monthly to plan production levels and manage inventory levels. These reviews, which we refer to as SIOP sessions -- sales, inventory, and operations planning -- resulted in a decrease in total unit production of 24% in 2017 compared to 2016. This allowed our finished-goods inventory to decrease by 54,500 units and distributed inventories of our products to stay essentially flat during 2017. Our total inventory decreased by $12 million, or 12%, in 2017.

We expect to manage our production to moderate inventory growth and capitalize on opportunities that present themselves in 2018. Workforce actions. When we reduced production in 2017, we were mindful of the impact it would have on our people, operations, and profitability. However, we had to make some difficult decisions.

We developed a strategic plan focusing on not filling positions vacated through attrition and the reduction of overtime while carefully monitoring our headcount. In the second half of the year we ended all temporary work assignments and in January 2018 consolidated and eliminated approximately 60 indirect labor position. These reductions were made in all of our locations and cut across all disciplines. From January 1, 2017, to January 31, 2018, which is a 13-month period, our headcount decreased by approximately 700 people, or 28%.

As a result, Ruger is better-positioned to succeed in 2018. The review of our workforce and our business needs occurs every couple of weeks at our semi-monthly SIOP meetings.These are the highlights of 2017. Before we take questions, I want to take a moment to reflect upon the recent tragic events in Florida. Although this call is intended to focus on our business, like all Americans, we also struggle with the shock and sadness of these horrible events.

We will continue to stand by our motto as "Arms Makers for Responsible Citizens," but we're people too and are impacted when tragedies like this occur in our communities. Operator, may we please have the first question?

Questions and Answers:

Operator

Yes. And as a reminder, ladies and gentlemen, if you have a question, please press *, then 1 on your touchtone telephone. And if your question has been answered and you wish to remove yourself from the queue, please press the # key. Once again, that's *, then 1 to ask a question.

Our first question comes from the line of Brian Rafn with Morgan Dempsey. Your line is now open.

Brian Rafn -- Morgan Dempsey -- Research Director

Good morning, guys. Give me a sense as the fourth quarter played out from the hunting season, maybe as you moved October to November into December, maybe Black Friday sales, holiday sales. How did the quarter progress?

Christopher Killoy -- President and Chief Executive Officer

Brian, as I think you know from some of the news stories that NICS checks, Black Friday was very strong. What we saw this fall in the hunting season was, frankly, we did much better on some of the non-standard calibers, things like the 450 Bushmaster bolt-action American rifle, as well as the 6.5 Creedmoors and things of that nature rather than the traditional calibers like 30-06s and 270s. So it was very good for Ruger in terms of bolt-action sales in the hunting season, but it was a little atypical in terms of which products were moving through.

Brian Rafn -- Morgan Dempsey -- Research Director

Yeah. There's been the last couple of hunting seasons kind of a cannibalization of modern sporting rifles taking over from some of the bolt-action scoped rifles that you'd normally see regardless the caliber. Is that continuing or has that subsided a little?

Christopher Killoy -- President and Chief Executive Officer

I think that's probably stabilized. I don't think we have any real data on that to confirm one way or the other but, like I said, the fall season, the hunting season, for us was good, but again it was dominated more by those non-standard and newer calibers like the 6.5 and 450 Bushmaster in particular, which we found somewhat surprising but was good for Ruger given the amount of SKUs that we had committed to those categories.

Brian Rafn -- Morgan Dempsey -- Research Director

OK, give me a sense, when you guys talk, you really anchor your growth on organic pipeline, engineering teams, designing. If you look at -- I'm going to kind of frame it three different ways -- if you look at the new products that are more about breakthrough, high-end, like the Precision Rifle versus the product pipeline or a product development like just a new frame, a new frame platform versus a third area, the derivative, kind of the iteration, the caliber, the finish, the grip, when you guys are looking at this type of a little more of a malaise, a little more normalized market, do you guys stage or give priority to maybe more new product frames or maybe more breakthrough designs like the Precision Rifle versus just having the derivative iteration-type caliber and finish and grip-type products or is it really just projects run their kind of order and you don't really give a preference?

Christopher Killoy -- President and Chief Executive Officer

Brian, with the major new-product initiatives, they typically involve teams of engineers and support folks, everybody from the purchasing disciplines and manufacturing engineers, tooling specialists, etc. So, those teams are pretty solid and stay together for the duration of the project. Examples of that would be things like the Pistol Caliber Carbine that we recently launched out of the Newport facility, the Precision Rimfire out of North Carolina, and the Security 9 out of Prescott, Arizona. So all those involved some substantial commitments both in terms of people and time.

And so those folks stay tied up and committed on those projects while we have other engineers and other folks that are working on those distributor exclusives. So both are really happening throughout the year and sometimes frankly we're opportunistic. When we see something like a 450 Bushmaster as a caliber get popular, we'll do additional special makeups or derivatives with different distributors that may involve camo patterns. You might have scope combinations on a 10/22, things of that nature, that allow a little differentiation but don't be trapped in the major new product initiatives.

Brian Rafn -- Morgan Dempsey -- Research Director

Yeah, I got you on that. When you say these distributor exclusive specials, what kind of a lifespan, you guys did `800 different models versus 380 in the catalog. Do these things run multiyear and/or are they [Inaudible] production runs that are in the hundreds or thousands or do they run multiyear? I'm just curious.

Christopher Killoy -- President and Chief Executive Officer

We have some that are in the thousands and then some that do run multiyear. Some distributors will have a reputation for certain categories, say, single actions, and retailers know they should keep them out for those particular special makeups. Then we have a lot of them that are these smaller categories that are kind of short-time in duration, maybe 500 units, and then move on to the next thing. So it's really a combination.

It depends on market reaction and acceptance when that's launched by the distributor to their retailers. And if it's strong, they'll typically come back for a reorder. The only exception would be of course if there's a limited edition that we said one of a thousand or something like that. Then obviously we'd stick with that preordained number.

Brian Rafn -- Morgan Dempsey -- Research Director

Gotcha. And I'll just ask one more and get back in line. The status of the Ruger Mark IV, the safety recall, I think you folks said about 2.5 million, is that finished for 2017? That's a done deal?

Christopher Killoy -- President and Chief Executive Officer

Well, a recall is going to go on for potentially years in the future. The big expenses are out of the way. I mean, what you've got is now you got a lot of legwork and detective work on the part of our customer service folks following up and tracking down individual customers who may have one of those models. We're practically 60% through all of our -- the unit shift on the Mark IV that are affected by that recall and frankly, that's very good.

It'll be a while as we go forward tracking those individual serial numbers down and customers. But by and large, the big expenses are all behind us.

Brian Rafn -- Morgan Dempsey -- Research Director

All right, I'll get in line. Thanks.

Operator

Thank you. And our next question comes from the line of Rommel Dioniso with Aegis. Your line is now open.

Rommel Dionisio -- Aegis -- Managing Director

Thanks. Good morning. Given the recent direction of the industry, I know there's been some talk in the financial press about the financial health of some distributors, specifically Jerry's and Ellett Brothers. I wonder if you could just talk about if that's going to have any -- do you foresee any impact on that business? Is there any receivables risk on the financial side? If you could just address that/ Thanks.

Christopher Killoy -- President and Chief Executive Officer

Well, Rommel, thanks for asking. Frankly, we monitor all of our distributors. We only have 19 distributors. We have another network of export customers that largely pay in advance.

And we have a small number of law enforcement customers but our primary commercial distributors are all current at this time and we're 99% to 100% current on all of our receivables. We do monitor their balances. Each one of them has a credit limit if you will, and we use a combination of letters of credit and credit insurance to mitigate that risk. So we're comfortable with where all of our distributors at this point in time, but that's not to say we don't watch all of our distributors very closely.

Rommel Dionisio -- Aegis -- Managing Director

OK, just a quick follow-up. Since SHOT Show, if wonder if you could just share with us anything you're seeing in the channel, whether promotions and discounts have begun to alleviate [Inaudible] here in these last few weeks since that major trade show? Thanks.

Christopher Killoy -- President and Chief Executive Officer

Since the SHOT Show for Ruger, it's been very positive as far as our new product launches. I mentioned some of the things that came out of all three factories in addition to those three big projects -- the Security 9, the Rimfire Precision and the Pistol Caliber Carbine. We also had the EC9s pistol out of Prescott. All four of those have been very solid and we have very strong demand from our distributors and retailers.

A lot of consumers are looking to get those products. So that's been very positive for us. Right now we're in the process of following up and closing out our winter show programs. If you recall, we launched those programs earlier than normal.

We launched those in December this year and those programs, as far as the ability for retailers to write orders under those programs, ends at the end of February and then we'll continue to deliver on those programs through the end of May. And so far, we're right in that cycle right now. So there's a little bit of a, as typically happens, a little bit of a sprint to the finish for dealers to get additional orders written under those program terms before the end of February.

Rommel Dionisio -- Aegis -- Managing Director

Great. Thanks very much, Chris.

Operator

Thank you. And our next question comes from the line of Bill Ledley with Cowen and Company. Your line is now open.

William Ledley -- Cowen and Company -- Analyst

Hi, good morning. Thanks for taking my question. Wanted to dig into the inventory levels a bit. The end of Q4 they were pretty strong, I would say, especially at Ruger and the distributors were flat year over year.

Could you just talk about how you see inventory playing out next year and just broadly inventory in the channel? Vista reported good inventory level in the channel on the ammo side. Just wondering what it's like on the firearms side.

Christopher Killoy -- President and Chief Executive Officer

Well, as you saw, at the distributor level, the inventory is basically flat year over year. As a target internally we try to keep our distributor inventory between six and eight turns. It's kind of what we view as an ideal level for a wholesale distributor in our business. We're close to six.

We're slightly over -- more inventory than we'd like compared to that six-turns level but not by much and, frankly, we're pretty pleased with where we are from an inventory standpoint down 50-some-odd thousand units from last year. The other point I'd make is that our [Inaudible] inventory levels are also down about 12% in total. So, we've been pleased with -- when you slow factories down, it's very difficult to manage inventory out in the field as well as what you're working with in the company and still be profitable, frankly, and that was the challenge we were facing in 2017 as we slowed all three of our factories down to meet what we felt was realistic demand in 2017.

William Ledley -- Cowen and Company -- Analyst

What about this industry-level inventory? What are your customers saying? How do you view that?

Christopher Killoy -- President and Chief Executive Officer

We don't really have good visibility into other manufacturers' specific inventory levels but, by and large, I think retailers were, navigated 2017 for the most part pretty well. They watched their inventories. Some of them frankly were looking for deals that materialized largely from some of our other competitors. So they were -- retailers were -- did a much better job than we've seen in the previous downturns in terms of managing their inventory levels and engaging in smart buying practices.

So I think they're probably fairly well-positioned for the year depending on how things shake out going forward.

William Ledley -- Cowen and Company -- Analyst

OK. And then just on orders, the order trends are quite good in Q4, especially relative to Q1 2, and 3 in '17. What drove that? Is that the restocking of the channel? Is it new products? Is it Ruger outperforming peers? What drove the large step-up in orders for Q4?

Christopher Killoy -- President and Chief Executive Officer

I think you may know, we don't spend a lot of time paying attention to our incoming orders but in our Q4 we had several things going on. Normally, what we call show programs or winter programs that we run begin January 1. This year we started them on December 1. So some of those orders that we might normally see in January, we saw those in December.

And then the other thing is new product launches of those four big major platforms -- the EC9s, Rimfire Precision, Pistol Caliber Carbine, and the Security-9 pistol. So, all positive from that standpoint.

William Ledley -- Cowen and Company -- Analyst

OK, and then if I can just squeeze in one more. You've mentioned excess industry capacity for a few quarters. What do you think happens to that capacity? Do you think it goes offline? How do you view that capacity going forward if level of gun demand will be lower?

Christopher Killoy -- President and Chief Executive Officer

Well, it's tough to say. I think it varies by company and what their plans are. I mean, the challenge for some companies are depending on how broad they are -- if they only cover one or two categories that may be suffering from a downturn, then obviously they are faced with, either to continue to build at current rates and discount to move the product or to cut production. In Ruger's case, we've got over 40 product families, so it allows us to be pretty diverse in terms of what we build and how we repurpose our equipment.

And so we redeployed equipment throughout all three of our factories and move things in between factories to try to balance our production. And as far as other competitors, I mean, again, difficult for me to say. At this point, it seems like most have cut their production but not all. Some are continuing to build and ship and potentially discount more than we'd like to see out there.

Operator

Thank you. And our next question comes from the line of Max Netrebov with Maks Financial Services. Your line is now open.

Max Netrebov -- Maks Financial Services -- President

Hey, good morning, guys. Thanks for taking my question. Let me squeeze in a couple of questions. First, is there any color that you can provide, if possible, into the product mix that's current [Inaudible] the distributors? So this new versus older product or more importantly is the mix substantially different today than it was a year or two ago?

Christopher Killoy -- President and Chief Executive Officer

Max, we do monitor that down to the SKU level, the individual stock-keeping unit, but to be candid, we don't disclose that. I will tell you it's pretty balanced. We don't see any eyesores in terms of Ruger products. Not sure of other manufacturers but, by and large, we're pretty comfortable with the mix of inventory that our distributors have.

Max Netrebov -- Maks Financial Services -- President

Awesome, terrific. The second question, obviously, Ruger has been doing the right thing -- you've stayed away from direct-to-consumer rebates and promotions, even though your competitors have. Do you see that changing in 2018, especially if some of your peers continue offering such deals, whether they need to get rid of inventories or they just want to spur up demand? Do you see anything changing for you guys to respond?

Christopher Killoy -- President and Chief Executive Officer

I don't see us going the route of consumer rebates, to be honest with you. We may do some consumer promotions like we've done in the past, that we try to be creative and not take value away from the product or anybody in the distribution channel, but I don't see us going the rebate route. For us, we continue to try to focus on new product innovation and I think that's what we're going to do going forward and, like we said earlier, the significant cuts to our production and realignment of our factories, I think, position us well for 2018. So we're comfortable where we are and I think, as you know, we monitor distributor sales much more closely than we ever do incoming order rates or even inventory.

Inventory we want to look at certainly to make sure there are no problems out there but it's what are distributors selling into retailers and ideally the anecdotal data that we get from our sales force and from major retailers on how they're doing -- that's what really drives our production levels and our product mix.

Max Netrebov -- Maks Financial Services -- President

Awesome, thank you. And the third question, the final one. Any thoughts on Remington's bankruptcy, whether it's going to have any impact or possibly open up some opportunities for you?

Christopher Killoy -- President and Chief Executive Officer

Well, to honest with you, we're watching that closely. I mean, Remington's a great company. It's been around since 1816, got some great brands and great products. We obviously wish them well going through that process.

We're going to monitor and see if there may be some opportunities down the road. We think given our strategy and our capital structure, with no debt and $63 million of cash on hand may provide some opportunities down the road if they present themselves.

Max Netrebov -- Maks Financial Services -- President

Awesome. Thank you.

Operator

Thank you. And our next question comes from the line of Chip Saye with AWH Capital. Your line is now open.

Chip Saye -- AWH Capital -- Analyst

Thanks for taking my questions. I have a few on CAPEX. CAPEX, it looks like you spent around $20 million in Q4. Can you talk about what you spent that on?

Christopher Killoy -- President and Chief Executive Officer

Well, frankly, Chip, most of that was -- we had already spent the cash sometime before Q4 but it was placing into service the three big projects-the Security-9 pistol in Prescott, Rimfire Precision in Mayodan, and the Pistol Caliber Carbine in Newport. All those three went into service in Q4. We started producing guns, shipping guns in Q4, frankly, in late December. And so that's why the big hit in Q4.

It wasn't a cash outflow. It was when those products went into service.

Chip Saye -- AWH Capital -- Analyst

OK. And then on that same front, your CAPEX guidance for '18 was a little lower than I anticipated. Can you talk about that because in recent years this averaged around $38 million a year and as high as $64 million, and now this is a dramatic drop? What's the reason for that and what does that say about your business?

Christopher Killoy -- President and Chief Executive Officer

Well, No. 1, it's redeploying of existing equipment. We've got a lot of CNC machine tools throughout all three factories that can be redeployed for new products. So certain products, they all need fixtures, tools, and gauges that are capital expenses but those are typically dwarfed by the big CNC machine tools that we would normally need to procure.

So, in a year like this when we bought a lot of those machines and, frankly, have a lot of those machines and we've cut production 25% since last year, we have those machines available. That's not to say if we see an opportunity that we won't double down, and reinvest and buy more equipment but right now we think those existing CNC machine tools will likely support what we need to do and a lot of that CAPEX that you see there in that $15 million will be the fixtures, tools, and gauges to still make new products but not have to buy brand new machines to make them on.

Chip Saye -- AWH Capital -- Analyst

OK, so the new product development can continue but with less CAPEX. Is that what I hear?

Christopher Killoy -- President and Chief Executive Officer

Absolutely, I mean we're going full-steam ahead with new product teams in all three facilities and no slowdown in that whatsoever.

Chip Saye -- AWH Capital -- Analyst

OK. And I was listening to your commentary about the workforce reductions and making the decisions you can to try to control what you can control, but when you slow factories down, you have a fixed-cost absorption. In your new products, the carbine, the S-9, are you having the same margin on those products as you did prior to, say, in 2016 and 2017?

Christopher Killoy -- President and Chief Executive Officer

Well, as you know, we don't disclose product line-level margins but anything within the factory four walls is going be impacted by the ability to absorb those fixed costs. So I think as volume picks up, which we would like to see it do, I mean, that would obviously improve those margins but that's what you're facing. All products within those four walls are going to be impacted by that de-leveraging of fixed cost from, say, prior quarters and prior years.

Chip Saye -- AWH Capital -- Analyst

OK. And just a couple of more, if you don't mind. The question earlier about discounting and you being creative, what do you see in terms of, maybe not just Ruger, but in terms of the environment? Do you see that discounting continuing? I know M&P ran a lot of discounts last year and rebates. What do you see for the retail environment in the next, say, six to nine months?

Christopher Killoy -- President and Chief Executive Officer

Well, that was hard to predict. Right now it seems to have stabilized somewhat from, say, it's not as aggressive, some of the rebate programs and things of that nature that we saw back in, say, the spring and early summer of last year. But there are still plenty of deals out there and I think the biggest challenge, again, if you're a manufacturer that you're only in one or two product categories, they tend to be the ones that have to get maybe more aggressive than others and that's where, again, the diversity of Ruger's product lines covering over 40 different products families, helps us navigate and hopefully not being too reliant on any one single product family to get us through the quarters and to get us through the year.

Chip Saye -- AWH Capital -- Analyst

OK. And, lastly, did I read it right -- I ran over the K last night but were there no buybacks in Q4?

Christopher Killoy -- President and Chief Executive Officer

That's correct.

Chip Saye -- AWH Capital -- Analyst

OK. All right, I appreciate it. Thanks for taking the questions.

Operator

Thank you. And our next question comes from the line of Brian Rafn with Morgan Dempsey. Your line is now open.

Brian Rafn -- Morgan Dempsey -- Research Director

Yeah, thanks. Chris, given the shrinkage in inventory and wholesale channel and the retailers being very, very careful, does that give them any more appetite for new product line launches that you guys might come out with because it's a little less risk if they're not sloshing with huge inventory?

Christopher Killoy -- President and Chief Executive Officer

Absolutely. There's no doubt about it. The new products will get people into the store, regardless, it also allows distributors to give their salespeople something exciting to contact retailers about. So it's a positive impact throughout the channel and I think with retailers' inventories being in better shape than they might have been some time ago, it kind of provides a better buying opportunity for them and a better opportunity for us to get those new products into their stores.

Brian Rafn -- Morgan Dempsey -- Research Director

OK. Given the moderation that we've all talked about the pace of business, you talked a little bit about shifting some CNC tooling around, have you added any more? I think the last time we talked at Mayodan, you were maybe 55%, 60% covered on the floor of the shop floor space. What would Mayodan be now and have you moved any more product lines down there?

Christopher Killoy -- President and Chief Executive Officer

We've got several product lines down there. We're in the process -- we're still building American centerfire rifles in both locations. We build the SR22 pistols down there. We build the LCP I and we also build the Precision Rimfire and all the American Rimfire bolt-action rifles down there.

We're probably -- we're still got some ways to go in Mayodan, but we're certainly more forward than when you were last down there, probably more like 75%, 80%, but we still have got some room to grow if we need to.

Brian Rafn -- Morgan Dempsey -- Research Director

Got you. Got you. Got you. OK, from the standpoint of, if you look at the kind of lean manufacturing, Mike had always talked about the Six Sigma Kaizen and that, you were a [Inaudible] way, way back when the Ruger family owned it.

Now it's more of a demand-pull single piece. What are you guys looking at as you go forward, and looking at incremental changes in lean manufacture? Is it scrap? Is it whip flow? Is it a work in process on the shop floor? Is it floor-space reduction for a super cell? What specifically are some of the things you think you can do at this point?

Christopher Killoy -- President and Chief Executive Officer

Well, one is obviously taking cost out of the process. Continuous improvement is really the bottom line but a lot of the Kaizens may be small in nature, may be related to ergonomics at the work center, may be related to safety improvements. So, when we do that, it provides a benefit not just financially but also to our employees in terms of the work conditions, safety in the shop, and all of that is positive. I'm always impressed by the daily Kaizens I see every day coming out of all three factories.

They do a short report out on each daily Kaizen and some of them can be real blockbusters in terms of cost savings and some of them can be fairly small but they're all continuously improving the process or the product. The other aspect of that is you've got great employee involvement in that process. That's where the best ideas are coming from, is the shop floor, certainly not from the top down. So it's all been very positive in terms of the ongoing Kaizen efforts.

Brian Rafn -- Morgan Dempsey -- Research Director

When you look at your engineering teams and all, you guys have anywhere from five to six to seven to eight guys, and I think the number at one time in that [Inaudible] is about 140-odd guys. Are you looking to that incrementally add at all because the focus being so big on driving new product sales or is it just rationalize with what the headcount you have? I'm assuming you haven't had any attrition on that side. Just kind of where are you in that hiring mold to engineers, design engineers, metallurgist guys? How important is that?

Christopher Killoy -- President and Chief Executive Officer

Well, we're not actively recruiting right now for any of those positions. We have, as you might have seen in the K, we have about 70 folks committed to the R&D/new product engineering effort and then a lot of those other engineers are involved in sustaining operations and mechanical engineers on the factory floor, all of whom great service to us and while we're not actively chasing new engineering talents, if we've got the opportunity for somebody with a unique set of skills in particular products that we're pursuing, that's something we will always be opportunistic and potentially find a home for that person.

Brian Rafn -- Morgan Dempsey -- Research Director

Got you. You don't have an age element. Obviously, you guys are very, very paternalistic. You don't have a lot of 63-year-old engineers.

Is there a fairly bell-shaped curve or how elderly is that engineering design team pool?

Christopher Killoy -- President and Chief Executive Officer

It's really a balanced mix. We've got some great folks that are maybe a little grayer if you will, but they're very talented and they've been around the block and can help us navigate things. They know firearms design inside and out. As great as it is to have the youngsters come in with great CAD skills and things like that, having the veterans in place that help us with firearms design and understanding the history of firearms is really a benefit to Ruger.

So, we've got a good mix in that group as we do in all areas of the factory.

Brian Rafn -- Morgan Dempsey -- Research Director

Yeah, OK. In relative to the SHOT Show and some of your conversation with wholesale dealers, just getting a sense of the cadence, pessimism, optimism, guarded optimism, and what was kind of their reception of some of the products you showed?

Christopher Killoy -- President and Chief Executive Officer

The products were very, very well-received. They're very excited about the new product launches. So that was very key. We had a lot of meetings at the SHOT Show, not only with our distributors, but with our key independent retailers and key national accounts.

And, again, it's new products that really make the difference. They're very excited about that. Like I said before, I think the retail part of the channel was a little wiser than maybe some portions of the manufacturing and wholesale level and I think retailers have navigated these waters for the most part pretty well.

Brian Rafn -- Morgan Dempsey -- Research Director

Got you. Got you. Up at Newport, anything relative to the main integrated foundry versus the two mini foundries that you're running? Any thoughts on that?

Christopher Killoy -- President and Chief Executive Officer

The two roll-over furnaces, or mini foundries, are doing great. We've still got -- the legacy foundry is still there and winding down. We've got -- the primary focus is remanufacturing some of the byproducts, the runners and things like that we need to use the main furnace for and then to get that material ready for the roll-over furnaces and there's a few parts we're still qualifying before they migrate from the legacy foundry into the roll-over furnaces but, by and large, that's gone very well and the folks at Pine Tree Castings have done a great job with that. So I think that's probably pretty close to steady-state in terms of those two mini foundries, if you will.

Brian Rafn -- Morgan Dempsey -- Research Director

OK, and is there any thought of shutting the legacy, the main integrated furnace down? You guys have kind of had that flexibility and it's been nice flexibility.

Christopher Killoy -- President and Chief Executive Officer

Yeah, it's been good flexibility in terms of the ability to ramp up but, it's also -- like I said, right now we still need it to handle some of the byproducts left over from the mini foundries, the roll-over furnaces, if you will. So, that's still a little bit of an open question. We don't want to shut it down prematurely and then not be able to go back but if we do, cast parts, there's other foundries if we had to in a surge situation, source those outside, but right now we have good flexibility with the two roll-over furnaces and still having the main foundry in place.

Brian Rafn -- Morgan Dempsey -- Research Director

Yeah, got you. Anything on commodity, raw material, feedstocks, steel alloys, woods, waxes, resins, sand, anything pricewise?

Christopher Killoy -- President and Chief Executive Officer

Nothing really significant that we've seen. One of the challenges we have is frankly on the wood side, not procuring it, but that's one of the things where our customers really like the highly grained wood on some of the products like the Hawkeye rifles and the number ones and that remains a challenge, getting that highly configured or highly grained wood, but beyond that, we're in pretty good shape in terms of commodities.

Brian Rafn -- Morgan Dempsey -- Research Director

Yeah. I think we saw some discounts, MSRPs upwards of 30%. What might be, as you kind of went through the Christmas season, what might be the ceiling right now on aggressive discounts?

Christopher Killoy -- President and Chief Executive Officer

I don't know. I mean, I think a lot depends on the strength of the individual retailer or potentially wholesaler that's moving that product. When we do our promotional programs in the winter and sometimes in the spring, those are focused on the retailer. So, we're not devaluing the inventory at wholesale, but it is making it more advantageous for the retailer to bring additional product in.

For example, it might be a buy-nine-get-one-free program or buy-10-get-one-free, whatever the case might be. So that benefits the retailer and assists in netting his overall inventory cost down but doesn't impact wholesalers. So sometimes you'll see big retailers and they have the appetite to go in with strong orders from their distributors, maximize the amount of discount. Even though the level of discount is all the same, they may have more product on hand and they may have more flexibility to be aggressive in their advertising or their discounting.

So, I think that's primarily where you're seeing it.

Brian Rafn -- Morgan Dempsey -- Research Director

OK, what was your sense, your Black Friday, maybe your promotions and national advertising -- did your efforts in sales kind of match your internal plan or budgets? What was your sense of Black Friday for you guys?

Christopher Killoy -- President and Chief Executive Officer

I would say at the micro level they did. I mean, the national account world and all retail in that world has been a challenge for some of those customers. I mean, you saw the Gander Mountain bankruptcy. I think that was in the last year, probably beyond 12 months now.

You see the acquisition of Cabela's by the folks at Bass Pro. So, that's certainly injected a level of additional excitement at that retail level and for us selling through two-step distribution, on one hand, we're insulated from a credit standpoint when there's a bankruptcy, like when Gander went out, but on the other hand when there's an acquisition like Bass Pro and Cabela's, we're working hard with both staffs to make sure that the assortment at the store level is strong in every Cabela's store and every Bass Pro store.

Brian Rafn -- Morgan Dempsey -- Research Director

Yeah, OK. Let me ask you, I kind of have a little bit of a legacy question. You guys at one time were in the shotgun market. I think Mike's comment was there was an issue of quality levels versus kind of it was $800 to $1,400 price point.

And I get it's a new product, so I get that, but any thoughts on the future of Ruger with either an over-and-under or a side-by-side shotgun/

Christopher Killoy -- President and Chief Executive Officer

Brian, you hit the nail on the head there. On the side-by-side market with the red label, I mean, that was one where we just felt we couldn't deliver the right product at the right cost. Our costs were much higher than we would like on that product and if we raised the price up to the level we thought would be necessary to make a fair profit margin, we just wouldn't be competitive with the market. So, that's why we pulled the plug on the red label couple years back.

Not that we would like to be there again. So, I wouldn't say never but, as you know, we don't talk about new products [Inaudible] off the table.

Brian Rafn -- Morgan Dempsey -- Research Director

Yeah, OK. Let me ask, some of your derivative products, you guys had some kind of unique caliber, 454 Casull, the 10mm, the 6.5 Creedmoor, 460 Ruger. How successful have some of those additional line extensions and calibers been for you guys?

Christopher Killoy -- President and Chief Executive Officer

Some of them were very strong. I mentioned before the 450 Bushmaster and centerfire American has really exceeded our expectations. Six five Creedmoor has been very strong. Other ones like the 6mm Creedmoor, for example, is a little slower start.

So they kind of vary. Some of the legacy calibers, like I said, 204 Ruger, as a varmint caliber, have been very steady over the years, things like 460 Ruger in the Super Redhawk line. Again, kind of a niche product, don't see a big hit one way or the other but I think it varies. A lot of those things, like I said, the 450 Bushmaster really caught me by surprise as far as just how strong it was.

Part of that was driven by the laws in certain states allowing for straight-wall cartridges to be used during what was previously a slug or a shotgun season. So some are driven by changes in hunting laws at the state level. Others are just driven by what catches on with the consumer and I think the 450 kind of struck a chord on both those notes.

Brian Rafn -- Morgan Dempsey -- Research Director

Got you. Got you. Any -- like we've had, when the Precision rifle came out -- any product that's on limited allocation or where there's more demand right now than there is supply?

Christopher Killoy -- President and Chief Executive Officer

Right now for sure the Pistol Caliber Carbine in 9mm has done very well and that one is one that I think is on allocation. We get a lot of dealers looking for where they can get the product. We've been shipping it every day since the end of December. However, there is a lot, I'll say, some frustration out there like we saw with the Ruger Precision rifle that people are chasing that and trying to find available product.

It's out there. I would tell them to keep looking, go to your independent retailer or look online because we're shipping those guns every day and the folks at Newport are ramping up, but, we're, frankly, the demand is outstripping supply on that gun right now. We get a lot of requests for other calibers, people looking for .40 S&W, people looking for a 10mm or a .45 ACP, all in that the Pistol Caliber Carbine platform. So, that's been very successful for us.

Operator

Thank you. And our next question comes from the line of Gavin Ritchie with RRCM. Your line is now open.

Gavin Ritchie -- RCM Capital -- Analyst

Hey, guys, just one really quick question. You mentioned your balance sheet. What level of debt would you take on for the right deal either in terms of EBITDA multiples or absolute dollars?

Christopher Killoy -- President and Chief Executive Officer

Yeah, that's something I probably wouldn't hazard a guess or speculate on. I mean, as you know, with no debt, we like our balance sheet now. I think we think it gives us a lot of opportunity in the future, but we don't really have any pre-ordained and limit. If the right opportunity came along, I think we would be able to get financing either with debt or equity as needed if it made sense for us.

Gavin Ritchie -- RCM Capital -- Analyst

Thanks.

Operator

And that is all the time we have for our question-and-answer session for today. So with that said, I'd like to turn the call back over to president and CEO, Mr. Chris Killoy for closing remarks.

Christopher Killoy -- President and Chief Executive Officer

Thank you. In closing, I'd like to thank you for your continued interest in Ruger and I'd like to thank our loyal customers and the 1,800 hard-working members of the Ruger team who design and manufacture rugged, reliable firearms every day in our American factories. I look forward to seeing many of you at our 2018 annual meeting on Wednesday, May 9, in Prescott, Arizona.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect.

Duration: 56 minutes

Call Participants:

Christopher Killoy -- President and Chief Executive Officer

Kevin Reid -- Vice President and General Counsel

Thomas Dineen -- Senior Vice President and Chief Financial Officer

Brian Rafn -- Morgan Dempsey -- Research Director

Rommel Dionisio -- Aegis -- Managing Director

William Ledley -- Cowen and Company -- Analyst

Max Netrebov -- Maks Financial Services -- President

Chip Saye -- AWH Capital -- Analyst

Gavin Ritchie -- RCM Capital -- Analyst

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