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Why Did Vista Outdoor Acquire Camp Chef?

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Price movement

Vista Outdoor (VSTO) has a market cap of $2.4 billion. It rose by 0.08% to close at $39.85 per share on September 1, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 1.7%, -22.3%, and -10.5%, respectively, on the same day.

VSTO is now trading 7.0% below its 20-day moving average, 14.5% below its 50-day moving average, and 15.5% below its 200-day moving average.

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Related ETFs and peers

The First Trust Consumer Discretionary AlphaDex ETF (FXD) invests 0.86% of its holdings in Vista Outdoor. The ETF tracks an index of large-cap and mid-cap US Consumer Discretionary stocks, and the underlying index uses multifactor selection and tiered equal weighting. The YTD price movement of FXD was 4.8% on September 1.

The iShares Morningstar Small Core ETF (JKJ) invests 0.57% of its holdings in Vista Outdoor. The ETF tracks a market-cap-weighted index of US small-cap core stocks. The index selects stocks from 90%–97% of market cap that falls into Morningstar’ core style categorization.

The market caps of Vista Outdoor’s competitors are as follows:

  • Sturm, Ruger & Company (RGR): $1.2 billion
  • Smith & Wesson Holding (SWHC): $1.7 billion
  • Orbital ATK (OA): $4.6 billion

Latest news on Vista Outdoor

Vista Outdoor has acquired privately owned Camp Chef (Logan Outdoor Products and Peak Trades), which provides more than 250 products, including camp stoves, barbecue grills, pellet grills, smokers, fire pits, cast-iron cookware, and accessories, for a total purchase price of $74 million.

Vista will pay $60 million in cash at closing and $14 million in cash in equal installments on the first, second, and third anniversaries of the closing date. This acquisition should provide value to the company’s customers.

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Performance of Vista Outdoor in fiscal 1Q17

Vista Outdoor reported fiscal 1Q17 net sales of $630.3 million, which is a rise of 22.5% over its net sales of $514.5 million in fiscal 1Q16. The company’s gross profit margin and EBIT (earnings before interest and income tax) rose by 0.44% and 0.17%, respectively, between fiscal 1Q16 and fiscal 1Q17.

Its net income and EPS (earnings per share) fell to $29.1 million and $0.48, respectively, in fiscal 1Q17, as compared to $33.9 million and $0.53, respectively, in fiscal 1Q16. VSTO’s cash and cash equivalents fell by 56.5%, and its net inventories rose by 25.8% between fiscal 4Q16 and fiscal 1Q17.

Its current ratio fell to 2.3x, and its debt-to-equity ratio rose to 1.1x in fiscal 1Q17, as compared to 2.8x and 0.77x, respectively, in fiscal 4Q16.

Projections

The company has made the following projections for fiscal 2017:

  • sales of $2.7 billion–$2.8 billion
  • interest expenses of ~$45 million
  • tax rate of ~37%
  • adjusted EPS of $2.65–$2.85
  • capital expenditure of ~$90 million
  • free cash flow of $130 million–$160 million

This guidance doesn’t include the impact of future strategic acquisitions, divestitures, investments, business combinations or other transactions, contingent consideration revaluations, transition expenses, or inventory step-ups for completed acquisitions.

In the next part of this series, we’ll take a look at Snyder’s-Lance (LNCE).

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