Sturm Ruger & Co. (RGR:US) and other firearms companies are leaving their traditional manufacturing hub in the Northeast, known as Gun Valley, and shifting production to Southern states more friendly to gun buyers as they seek to boost flagging sales.
Sturm Ruger, the largest publicly traded U.S. weapons maker, said yesterday sales fell 14 percent in the second quarter from a year earlier and earnings declined 31 percent. Smith & Wesson Holding Corp. (SWHC:US) last month forecast profit and sales for fiscal 2015 that were lower than analysts estimated.
Connecticut, Massachusetts and New York have been the center of gun manufacturing in the U.S. for more than a century, with Smith & Wesson, Sturm Ruger, Colt’s Manufacturing Co., and several parts suppliers all based in those states. After the massacre at Sandy Hook Elementary School in Newtown, Connecticut, in 2012, the state banned assault weapons and high-capacity magazines, spurring Sturm Ruger to set up a $26 million production facility in Mayodan, North Carolina.
“Everyone is getting out of Gun Valley and going to the south due to three factors: the legislative atmosphere; it’s cheaper in terms of labor and it’s cheaper in terms of taxes,” said Brian Ruttenbur, an analyst at CRT Capital Group in a telephone interview on July 28.
Sturm Ruger’s shares tumbled 10 percent to $51.74, their biggest decline since December 2012. They have fallen 29 percent this year, compared with a 4.3 percent decline for Smith & Wesson.
Last week Beretta, an Italian family-owned gun maker that has been making weapons in Maryland for about 40 years, added its name to the list of migration, announcing it’s moving production to Tennessee. Maryland banned 45 assault long guns and 15 specified assault pistols and has fingerprint and photo identification requirements.
Sturm Ruger’s move to open a factory in North Carolina came after the Connecticut legislature ended the sale of long guns to people without a permit. Retailers also now require approval by the commissioner of the Department of Emergency Services and Public Protection to sell long guns.
The Mayodan facility, which Sturm Ruger announced last year, is Sturm Ruger’s first major expansion in more than 25 years and production at the plant was scheduled to start during the first quarter. The company bought the facility to make its new line of firearms, as it seeks to attract new customers.
“So many of these factories that produce guns in the Northeast are extremely old, as some of these revolvers have been in constant production for 100 years, using 50-year-old machines,” Ruttenbur said. “When you need to scrap and build from scratch why not move to a cheaper location with friendlier gun laws?”
Sturm Ruger, based in Southport, Connecticut, doesn’t produce the large capacity magazines the state outlawed, the kind of ammunition that was used in the Sandy Hook shooting when 26 students and teachers were killed. But the law heralded the departure of small arms manufacturers Stag Arms LLC and PTR Industries, both of which relocated to Southern states.
In moving, the companies are banking that the costs will balance out over time, Ruttenbur said. In Sturm Ruger’s results new products represented 18 percent of its firearms sales in the first half of 2014, making factories like Mayodan, which is focused on producing new lines of rifles, central to improving margins.
“There will be one-time shifts but over time all these companies are making decisions based on economic factors. They are only going to move facilities if they can make it pay over time,” Ruttenbur said. “There’s a huge economic factor when these states are doing away with hundreds of jobs with legislation and I see there’s going to be very limited gun production 10 years from now in the Northeast.”
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