Vista Outdoor (NYSE:VSTO) is up almost 15% since reporting fiscal third-quarter results on Feb. 6 that blew past analysts' targets for both the top and bottom lines.

Helping to push the outdoor recreation gear company ahead was the ammunition division, which recorded its first quarter of sales growth in almost four years. Despite having sold off its firearms business, Vista still needs to ride the industry's coattails for gains, and growing a business beyond guns is still challenging.

An open box of ammunition.

Higher sales of Vista Outdoor's Federal Premium brand ammo helped lift profits in the third quarter. Image source: Vista Outdoor.

Setting its sights on growth

Vista reported sales in its outdoor products segment fell 2% year over year to $222 million, generating adjusted gross profit of $56 million, a 1% decline. Gross margins, however, came in at 25% on an adjusted basis, an improvement of 26 basis points.

Conversely, Vista's shooting sports segment enjoyed a 2% gain as ammunition sales rose. Adjusted gross profit jumped 13% from last year and margins were 16%, a 150 basis point increase.

There were indications Vista's ammunition business would have a good quarter when specialty chemicals company Olin, which also owns the Winchester brand of ammunition, reported in early February that brand sales jumped 6% for the quarter, generating a 63% gain in segment profits as commodity and other material costs fell.

Vista Outdoor, though, remains the world's largest commercial ammunition manufacturer with brands such as Federal, Speer, CCI, and Alliant Powder, in addition to contracts with the military.

A legacy in sporting goods

The company is still one that's in transition after having sold off its Savage Arms firearms division last year. Vista came to believe that guns were not part of its core business since Savage had been acquired shortly before its spinoff from the sporting goods division of Alliant Techsystems in 2015. Coupled with the extreme volatility seen in the firearms market in recent years, and Vista believed it was best to get back to its roots.

That meant focusing on its big brands like CamelBak, which had a strong holiday season as investments in its e-commerce site helped deliver increased traffic, conversions, and net sales. Vista sees digital investments across all of its brands as key to driving future growth.

In fact, CEO Chris Metz pointed out on the earnings call that Vista had developed e-commerce platforms for 16 brands in 2019 and will bring the rest of them online this year.

It's already had a positive impact beyond just CamelBak as Metz said platforms for Bushnell and Primos Hunting -- along with direct-to-consumer sites like Uncle Mike's, which offers holsters, bags, and duty belts for law enforcement -- experienced "record-setting year-over-year revenue growth during the holiday season as well as site and conversion increases well over 1,000 basis points for each."

On target for more gains

The improved performance in the third quarter allowed Vista Outdoor to narrow its full-year guidance. Where it previously expected sales of $1.75 billion to $1.85 billion, it lowered the top end to $1.8 billion and now sees adjusted earnings per share coming in between $0.15 and $0.20 per share compared to the previous range of $0.10 to $0.25 per share. More importantly, Vista now sees the business producing more free cash flow this year, $40 million to $50 million versus the $30 million to $40 million it previously forecast.

Vista continues to make inroads on cost containment and debt reduction, repaying another $55 million of its long-term debt, which now stands at almost $524 million.

An improving ammunition market will certainly help lift performance, but the company still needs more consistency out of its outdoor products segment. Having recorded two consecutive quarters of strong results -- even if its stock declined in between the spikes on the earnings news -- Vista Outdoor looks like it's on the path to a more secure future.