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Sturm, Ruger (RGR) Q2 Earnings: A Surprise in the Cards?

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Sturm, Ruger & Company, Inc. (RGR - Free Report) is scheduled to release second-quarter 2017 financial results on Aug 2.

In the prior quarter, the company reported a positive earnings surprise of 23.47%. Moreover, Strum, Ruger outperformed the Zacks Consensus Estimate in two of the trailing four quarters with an average earnings surprise of 22.73%.

Let’s see how things are shaping up for the company prior to this announcement.

Factors at Play

During the second quarter, Strum, Ruger increased its quarterly dividend by 9.1%, which raised its dividend per share from 44 cents to 48 cents. This indicates the company’s stable financial position and commitment towards efficient capital deployment.

Strum, Ruger plans to invest $40 million in 2017, particularly in new product development. Toward this end, the company had announced its plans to unveil a new variant of the precision rifle in the second quarter. This, in turn, is expected to bring a rebound in the lower average selling price for its rifles, which was witnessed in the prior quarter. We may expect more updates on this product launch in the upcoming results.

On the flip side, a change in customer choice – as they have recently started spending their discretionary income on concealed carry products and modern sporting rifles – might hurt the company’s flagship firearms product line. Although Strum, Ruger is gradually shifting its focus to commercial sporting products, whether it will succeed at the end or not, remains a question. Once the second-quarter results are released, we may expect to observe its progress in this new business line.

According to the FBI's National Instant Criminal Background Check System ("NICS"), second-quarter 2017’s firearm background checks dropped 4.2% from the year-ago quarter, which indicates a decline in demand. This could hurt sales growth for publicly traded gun manufacturers like Sturm Ruger, in the soon-to-be reported quarter.

The Zacks Consensus Estimate for second-quarter earnings for the company is pegged at $1.11 a share, reflecting a 9.02% year-over-year decline.

Earnings Whispers

Our proven model does not conclusively show that Strum, Ruger is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Zacks ESP: Strum, Ruger has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.11. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Strum, Ruger carries a Zacks Rank #3, which increases the predictive power of ESP. However, the Earnings ESP of 0.00% makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some stocks in the consumer discretionary space, which have the right combination of elements to post an earnings beat this quarter:

AMC Networks Inc. (AMCX - Free Report) is expected to report its quarterly results on Aug 3. The company has an Earnings ESP of +1.42% and a Zacks Rank #3.

SeaWorld Entertainment, Inc. (SEAS - Free Report) is expected to report its quarterly results on Aug 8. The company has an Earnings ESP of +5.88% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Wyndham Worldwide Corp is expected to report its quarterly results on Aug 3. The company has an Earnings ESP of +1.33% and a Zacks Rank #3.

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