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Why Shares of Vista Outdoor Are Soaring Today

By Lou Whiteman – Aug 6, 2020 at 12:21PM

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Quarterly earnings and guidance suggest the company's transformation plan is ahead of schedule.

What happened

Shares of Vista Outdoor (VSTO 1.26%) climbed 17% on Thursday morning, after the outdoor sports equipment company reported better-than-expected quarterly results and raised expectations for the year.

So what

Before markets opened Thursday, Vista reported fiscal first-quarter earnings of $0.51 per share on revenue of $479 million, easily outpacing analyst estimates for a break-even quarter on $405 million in revenue. Revenue was up 4% year over year, and free cash flow of positive $73 million was much better than management's guidance that it would be "less negative" than the $45 million cash bleed last quarter.

Hiking gear left on a scenic trail

Image source: Getty Images.

Vista has been in a period of transition. In 2019 the company sold off its gun business in order to focus on a portfolio of about 50 brands -- including Bell, Bushnell, CamelBak, and Camp Chef -- that serve bicycling, camping, and hiking enthusiasts.

But the company kept certain ammunition and shooting sports accessory businesses, and the shooting sports division generated strong results in the quarter. Gross profit in the division was up 71% thanks to strong volume and pricing mix. Its other brands were mixed, with increased demand for camping equipment offset by weakness in outdoor recreation equipment and gear typically sold in person at retail locations.

"We had an incredible start to our fiscal year, and we see continued strength going forward in both our Outdoor Products and Shooting Sports segments, with increasing participation rates across all of our categories," CEO Chris Metz said in a statement. "The hard work we have done over the past two years in building a nimble and profitable platform has enabled our brands to capitalize on these outdoor recreation trends."

Now what

Vista Outdoor said it expects to earn between $0.60 and $0.70 per share in its fiscal second quarter on revenue of $495 million to $515 million, much better than analyst projections for $0.12 in earnings on revenue of $468 million.

The transition is not complete. Vista Outdoor still has more than $400 million in net debt. Metz said that the company intends to use these better-than-expected earnings and cash numbers to both invest in brands and to continue deleveraging the balance sheet. The company could also do acquisitions.

Shares of Vista Outdoor are now up 184% for the year, but they're still down slightly over the past three years. The company has taken investors through some rough terrain in recent years, but if these results are any indication, the worst of the challenges are finally behind it.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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