Vista Outdoor, Inc. (VSTO) Q3 2021 Earnings Call Transcript

Vista Outdoor, Inc. (NYSE: VSTO) Q3 2021 earnings call dated Feb. 04, 2021

Corporate Participants:

Kelly Reisdorf — Vice President, Chief Communications and Investor Relations Officer

Christopher T. Metz — Chief Executive Officer

Jason Vanderbrink — President of Ammunition

Sudhanshu Priyadarshi — Senior Vice President and Chief Financial Officer

Analysts:

James Hardiman — Wedbush Securities — Analyst

Daniel Flick — Cowen & Company — Analyst

Scott Stember — CL King — Analyst

Matt Koranda — ROTH Capital — Analyst

Mark Smith — Lake Street Capital Management — Analyst

Ryan Sundby — William Blair — Analyst

Eric Wold — B. Riley — Analyst

Brian DiRubbio — Robert W. Baird — Analyst

Jim Chartier — Monness, Crespi, Hardt — Analyst

Presentation:

Operator

Good day and welcome to the Vista Outdoor Inc. Third Quarter Fiscal Year 2021 Earnings Call. [Operator Instructions]

At this time, I would like to turn the call over to Kelly Reisdorf. Please go ahead.

Kelly Reisdorf — Vice President, Chief Communications and Investor Relations Officer

Good morning, and thank you for joining us for our third quarter fiscal year 2021 earnings call. With me this morning is Chris Metz, Vista Outdoor’s Chief Executive Officer; and Sudhanshu Priyadarshi, Senior Vice President and Chief Financial Officer and Jason Vanderbrink, President of Ammunition.

Before we begin, I’d like to remind everyone that during today’s call, we will be making several forward-looking statements, and we make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face Vista Outdoor and the industries in which we operate. We encourage you to review today’s press release and Vista Outdoor’s SEC filings for more information on these risk factors and uncertainties.

Please also note that we have posted presentation materials on our website at vistaoutdoor.com, which supplement our comments this morning and include a reconciliation of non-GAAP financial measures.

With that said, I’ll turn the call over to you, Chris.

Christopher T. Metz — Chief Executive Officer

Thank you, Kelly. And good morning everyone. Thank you for joining us. Before I start with results and prepared remarks. I want to take a moment to thank the men and women that stand behind the results I’m going to share with you. I’m so incredibly appreciative and grateful for the hard work of our dedicated team. We’ve been through a lot the past few years to reposition Vista Outdoor to its rightful position as leaders in the industry. And our people have worked through incredibly challenging times the past 12-months, many juggling personal strife and heartache. Through it all, our team has contributed immensely to enable us to distinguish ourselves as leaders. I’m proud of our team and thankful to be a part of it.

Much has happened over the past 90-days, and our team has delivered another quarter of outstanding results across just about every facet of our business. Our third quarter was marked by continued strong consumer demand, a strengthened balance sheet, execution excellence and decisive moves for future strength.

Sales were up 35% year-over-year to $575 million and gross profit was up 84% to $164 million. Our Shooting Sports segment was up 41% year-over-year to $402 million, and our Outdoor product segment was up 24% to $173 million. Our EBITDA margin was 15.4%, which is a 735 basis point improvement over the prior year. Adjusted EPS was $1.03 versus $0.21 last year. We achieved year-to-date free cash flow of $294 million versus $46 million last year. Additionally, our leverage ratio is now below 1 times.

Consumer demand during the pandemic fueled period remain high, and outperformed expectations in the third quarter. This is notable as the third quarter is generally slower due to the winter weather and the seasonality is in core products, such as outdoor cooking, biking, golfing, and target practice. With social distancing and other limitations still in place, our teams were able to capitalize on the heightened demand and provide the right products at the right time for our end users.

Like many of you, we are working to analyze the new core demand level for outdoor consumer products. We know that 2020 produced more than 8 million first time gun owners, many of whom are more diverse and more active. There are 1 million new hunters powered by new and reactivated hunters. This has led to a 12% increase in hunting license sales across the country. We know that more people experience the outdoors with their first camping trip, while the camping trips taken in 2020, half of the trips were taken by first time or reactivated campus.

In November 2020, the most recent month in which people for bikes date is available, we saw bicycles, bike equipment and bike shop services increased by 84% year-over-year. These are all key metrics we review each month, and this data is highly encouraging. While we recognize, we will return to a new and improved normalized growth rate at some point, the events of 2020 have clearly expanded the base and will support long-term growth as the outdoor industry for years to come.

The trends we’ve seen have contributed to us performing at our strongest levels to-date. In fact, nearly every company we purchased is now operating at or near historically high levels of sales and profits. Because of the hard work of our transformation efforts over the past few years, our sales performance has translated into record profit rates, free cash flow and cash conversion. Our teams’ focus on both the income statement and balance sheet is delivering balanced results.

Our leadership team understands the importance of being great stewards of capital. Our acquisition of Remington is ahead of plan and we expect similar results with our just announced acquisition of Hevi-Shot. We most recently acquired Hevi-Shot Ammunition for a total of $16 million. This iconic brand is an innovation powerhouse, specializing in the manufacturer of top tier shotshells, bullets and lead-free technology. Hevi-Shot is well-known for their high-end, high performing shotshells with a strong emphasis in waterfowl hunting, which is an attractive category as lead-free hunting products provides stability and regulatory certainty, which helps to mitigate volatility.

Overall, the iconic Hevi-Shot brand and its technical capabilities to leverage across our ammunition portfolio will provide cost and revenue synergies to us and also enhance our market leading position. As with Remington, we expect to Hevi-Shot to be accretive to earnings in under 12-months post transition. In total, with the underlying strategy to deliver market beating growth and profitability, given our teams ability to execute. While we’ve had incredible acquisition opportunities in ammunition, as we look ahead, you should expect to see more activity in the outdoor product segment of our business.

Within outdoor products, each of our business units performed better-than-expected in the face of typical seasonality. Camp Chef continue to expand its positioning in the marketplace, with more consumers migrating to Camp Chef’s back [Indecipherable] offerings, which include the Wi-Fi, woodwind pellet grill, and the versatile sidekick grilling attachment. This expansion has fueled multiple months and triple-digit growth, and with Camp Chef loyalty and lifetime customer value metrics, 2020 growth bodes well for the future of outdoor cooking platform.

Bell and Giro also had a strong quarter, as cycling trends continue to power the industry, resulting in another quarter of double-digit growth for [Indecipherable] Bell and Giro brands. As expected the snow-related parts of our business were down, given the COVID-related closures and reduced capacity at ski resorts. However, we fully expect this to bounce back next year as resorts open back up.

Our Bushnell Golf team continues to enjoy phenomenal success, resulting from new product innovation. The Wingman GPS-enabled speaker continues to outperform expectations and was boosted further by holiday sales. We believe Wingman has a nice runway as the European and Asian golfing markets have been more constrained due to COVID restrictions than we’ve seen in the United States. The Bushnell Wingman is a perfect case study of what product innovation can bring to both our top and bottom lines. And importantly, all Wingman sales have come at map pricing, ensuring our customers make a fair profit and have every incentive to support and market the product.

For CamelBak, we’re excited to share with you a collaboration with one of the industry’s great companies Peloton. Peloton is the world’s leading interactive fitness platform with more than 3 million subscribers. We’ve collaborated with Peloton to create a new bottle and program. This program called hydrea, will feature a custom Peloton’s theme [Phonetic] CamelBak Podium cycling model, as part of a larger assortment of personal fitness equipment and will start shipping in April of this year. This partnership is a great fit to further build CamelBak brand awareness and is well time heading into the spring season.

On e-commerce front, Black Friday and Cyber Monday revenue traffic were, up more than 100%, when compared with the prior year. Within hunt/shoot brands revenue more than doubled over the prior year from Black Friday and Cyber Monday traffic. Hunt/shoot strength is powered both by new product innovation and an enhanced marketing strategy that brought together Bushnell ambassadors, specialized educators and media for a week-long event for new product demos, training and brand education. The results were fantastic and the team’s efforts supporting strong launches for the RX100, RX250 red dot sights and the new T-Series L2C Holster.

For the third quarter in total, revenue across our e-commerce channels was up more than 50% year-over-year. All of our businesses performed well online, with our Camp Chef and Bushnell Golf brands leading the pack with continued triple-digit increases. As we’ve discussed previously, our e-commerce business represents roughly 20% of our total company sales. Importantly, we continue to see significant opportunities to grow this channel distribution, with little to no cannibalization of our traditional brick and mortar sales partnerships.

Now we’d like to spend some time talking about our Ammunition business. I’ve asked Jason Vanderbrink, President of Ammunition to join us today and provide an update on the business given the recent Remington and now Hevi-Shot transactions. Jason?

Jason Vanderbrink — President of Ammunition

Thanks, Chris, and good morning, everyone. I’m excited to be here representing the men and women of Federal, CCI, Speer, Remington and now Hevi-Shot. Together we have nearly 4,000 employees, who work day and night, 24/7 to deliver the best products to our customers. Our nation’s law enforcement, the United States military, citizens across our country, who are heading out into the woods or heading to the range and many international partners. Our workforce including our newest employees out in Sweet Home, Oregon are our number one competitive advantage, and I’m honored to represent them today.

Safety is something we practice and promote on a daily basis. And throughout the pandemic, we have altered the way we operate to accomplish CDC guidelines and other best practices. Our employees wear masks, have their stations clean on a regular basis, and while our most positions are naturally social distance, we haven’t heard that all positions can operate with the proper spacing.

Now getting to the quarter. Touching on the consumer demand trends, Chris just mentioned, keeping that drove our results this quarter were, innovation. Innovation is the life blood of our company and is the key to driving increases in participation and consumption. We’ve recently earned the American Rifleman Ammunition product of the year for Federal’s Terminal Ascent and FireStick.

CCI Clean-22 received the coveted Editor’s Choice award from On Target Magazine. We are excited to bring new and better products out each year. Heading in the fiscal 2022, we have more than 15 new product launches scheduled, including many within the Remington brand, and we are looking forward to a big green box come back.

Second, we saw continued strength in the government sales channel. I’m pleased to share that Federal has just awarded the FBI 556 reduced lead training and service contract. This award grants us increased volumes for the next five years with shipments beginning in the first quarter of our fiscal year 2022. This was the major win for our employees and our business, as this creates a halo effect for our portfolio of ammunition brands. Contract wins such as this served to hedged from volatility we experienced in the commercial market.

Third, we were able to fully offset the impact of the loss of Lake City contract, with increased sales in our other ammunition categories. As Chris mentioned on our last earnings call, we have reached the two-year agreement with the new operator of the facility to distribute a portion of former volumes of 223, 556 ammunition from the Lake City plant. However, growth in our centerfire pistol and hunting ammunitions sales have more than offset the decrease in Lake City volume. Demand for these categories has historically been less volatile than demand for 556 and 223. We are optimistic that the net results of the loss of a Lake City contract will be total ammunition sales that are more stable and more profitable in the future.

And fourth, Remington. This integration is ahead of schedule, has delivered better-than-expected results in the quarter, and we now expect this business will be accretive to earnings in as early as the first quarter of fiscal 2022. In a category where we are a leader, our talented team are executing well and we are excited to be able to induce the market with the start of the brand.

Additionally, many of you are following the stock outs across distribution channels closely. Since we have last commented on our ammunition backlog, it has continued to increase and velocity has accelerated since last fall across all of ammunition brands. The demographics of our end users are also changing. Our goal is to recruit, educate and retain as many of these more than 8 million new users as possible. In addition to increasing our presence in core market, the advertising and consumer engagement panel, we have quickly added messaging that speaks to the new market entrance in hunting and shooting sports.

Our outreach campaign includes, targeting people on websites outside of the traditional. We are seeing the video view completion rate of 90%, which is more than double our average, and we are driving prospective customers back to new, getting started content on our websites. This has been particularly successful with messaging focused on personal protection, fire arms cleaning and proper fire arms safety and storage practices. The engagement on all of our social channels has been stronger than ever and proved our strategy is working.

Our consumer panel is giving us greater insights in the consumption and participation trends, stockpiling behavior and a better look at what is most important to the new shooter. Throughout the pandemic, we’ve seen a 30% increase in engagement, which gives us great feedback for us to keep improving our product offerings, and to service all of our end users.

Overall, this has been an exciting new adventure for the ammunition team, and we are excited to see such strong participation and demand for a whole new demographic. Our vision is to be a truly one-stop shop for all types of shooters to learn more about the safe and enjoyable use of our ammunition, so that they can count on each one of our brand to be a reliable and informative source of education material on everything from fire arms safety to personal protection for the lifetime of their journey in hunting and shooting sports.

We promote safety through our partnerships and marketing. We support project child safe, which gives more lock and fire arm space into the hands of consumers. We have recently partnered with the International Hunters Education Association to modernize the website, which will bring more safety and educational content to new and old hunters alike. And our branded social media channels and web platforms are populated with education material and tutorials to promote and share best practices for the safe use of our products.

Finally, our team at Federal deserves to be recognized for the work they’ve done to cut costs and improve sustainability through the conversion of materials. Federal just introduced a new shotshell product line that is replaced the historical plastic wad with 100% cardboard wad. This new feature adds to our industry leading sustainable offerings, which includes steel shot, business shot, tungsten super shot, and now this line of target loads with a paper wad. A more cost effective, more sustainable alternative to plastic, while at the same time setting the performance standards for shooters that are required to shoot biodegradable wad at various ranges.

Together, these products support our business, while also complementing the conservation ethic that lives within all of us who hunt. Our ammunition business leads the industry in the use of recycled lead and other raw materials. We believe our innovation is good for the natural world and also for our bottom line. If shooters prefer to use non-toxic ammunition or if they are required, our broad offerings lead the industry for the end user.

Thank you for your time today and for your interest in our ammunition business and Vista Outdoor. Sudhanshu?

Sudhanshu Priyadarshi — Senior Vice President and Chief Financial Officer

Thanks, Jason, and good morning, everyone. Vista Outdoor is currently in the position of strength beginning strength. Growth during the surge has enabled the company to further gain share, reach new levels of influence and buying power, reduce debt and build cash. This dynamic is a compelling overlay to the foundational attributes of Vista Outdoor, such as leading brands, large and growing market, proven management and ability to create long-term value via factors within our control, such as product mix, price and cost initiatives.

Our long-term financial strategy remains as, first, focus our internal investments to provide fuel for continued organic growth. Second, conservative balance sheet management; and third, a capital allocation approach that is efficient, strategic and supportive of tuck-in acquisition opportunities.

Let’s discuss a few key points from the quarter. I’m not going to go through the whole P&L as Chris covered already, but I’d like to provide context on a few areas. We have provided you with both as reported and adjusted results in our press release and slides. My comments today focused on adjusted results. Year-over-year increases in gross profit of 84% to $164 million reflect overall improvements in pricing, mix, and efficiencies across nearly all of our brands.

EBITDA margin increased nearly 800 basis points to 16% in the third quarter. Interest expense for the third quarter was $6 million, down 25% from the prior year. Third quarter adjusted tax expense was $6 million, compared with a benefit of $710,000 in the prior year. The adjusted tax rate was 8%, reflecting benefit from the release of uncertain tax positions due to statute of limited expiration.

Adjusted net income was $62 million, resulting in an adjusted EPS of $1.03, compared with $0.21 in the prior year quarter. Key drivers behind EPS strength were volume, improved gross margin in both segments, growth of our e-commerce channel and benefits from the new product and cost saving initiatives. The difference between GAAP EPS of $1.31 and adjusted EPS of $1.03 is the result of a gain on the sale of our non-lethal training business, a tax valuation allowance and M&A related transaction expenses.

Our balance sheet has been strengthened by delivering $104 million in free cash flow this quarter and $294 million year-to-date. We had a strong working capital performance, driven by good collections due to demand, and an overall reduction in inventory in the channel, primarily due to market demand offset somewhat like COVID-related supply chain disruptions.

Turning to Page 12 of the presentation. At the end of the quarter, we had approximately $254 million in net debt, and our leverage ratio improved 2.9 times. The average outstanding balance of our ABL loan in our third quarter was $10 million, compared with $209 million in the prior year quarter. Our balance sheet continues to get stronger, and we continue to have ample liquidity to fund our growth.

Based on the outside strength these past few quarters, we now believe, we can keep our leverage ratio in the range of roughly 1 times to 2 times. It is prudent that we target a lower long-term leverage ratio to derisk our balance sheet. Staying at 1 times to 2 times leaves us plenty of room to grow through internal investment and M&A.

Going forward, we record some cash as a safeguard should slow down or headwinds emerge, while also ensuring that we have the flexibility to grow through internal investments and M&A at all points in the market demand cycle. As a reminder, we are now in what is historically a seasonal step down quarter sequentially. And soon year-over-year comps will be, compared to pandemic fueled record high quarters. As vaccine becomes more widely available, we will increasingly compete for the share of consumer’s wallet, with travel and entertainment sector that has been restricted by the pandemic. So the pace of our sales growth and cash generation could moderate. We believe it is prudent at this point to resist the temptation to increase leverage or put our cash to more aggressive use.

On to segments results, shootings sports recorded third quarter sales of $402 million, up 41% from the prior year quarter. Of this, our ammunition business was up 42% and our hunt/shoot business was up 37%. We continue to see strong demand for ammunition and hunting shooting accessories. The strongest ammunition categories were rifle and pistol ammunition. We also saw a strength in both brick and mortar and online channels, as overall participation remains strong.

Third quarter gross profit dollar was $114 million, up 120% from the prior year quarter. Gross profit rate for the quarter was 28%, which is more than 1,000 basis point improvement, when compared with the prior year quarter. Commercial strength drove improvement to mix and price. We also saw improvements resulting from e-commerce growth and operating efficiencies. EBIT improvement in the quarter was again nothing short of outstanding. Dollars were up 189% over the prior year, and the rate improved by more than 900 basis points.

Turning to other products. Third quarter sales were $173 million, up 24% over the prior year. We saw continued demand from the resurgence in outdoor activities and exceptional e-commerce performance across all brands. Gross profit was $50 million, up 35% from the prior year. Gross profit margin improved by just over 200 basis point. The segment delivered 110% year-over-year increase to EBIT and the EBIT margin rate increased to 11% from 6% in the prior year.

Turning to our outlook. Today, we are providing guidance for our fourth fiscal quarter. Our key assumptions are continued strength of demand in commercial ammunition, overall e-commerce trends continue, our supply chain that remains largely uninterrupted to be offset somewhat by a quarter with seasonally lower demand.

And lastly, we expect margin pressures from tariffs, commodity pricing and freight charges. We anticipate shooting sports to show a higher year-on-year growth rate than outdoor products, influenced by the headwind of winter, possible risk of retail closer, as well as possibility of vaccination, prompting people to leave the home more and conduct less e-commerce shopping. Also for your modeling purposes, we anticipate full-year annual capital expenditure to spend to be roughly 25% higher than the prior year, reflecting accelerated investment in Remington operations. We expect annualized interest expense to be significantly less than the prior year.

Our tax rate for the fourth quarter is expected to be in the high-teens. We expect our leverage ratio to stay at or below one-time in the fourth quarter. And given visibility into cash flow, we expect fourth quarter free cash flow results to be better than the fourth quarter of last year. Therefore, our fourth quarter fiscal year 2021 guidance, which includes Remington and Hevi-Shot is as follows. We expect revenue in the range of $510 million to $530 million and earnings per share in the range of $0.55 to $0.65.

Fourth quarter sales guidance includes roughly $30 million in sales from Remington and Hevi-Shot combined. Hevi-Shot generated approximately $20 million in sales in calendar year 2020. In fiscal 2022, we expect Remington to reach a quarterly run rate of roughly $50 million plus by mid next fiscal year, and expect Hevi-Shot to be accretive to earnings within 12-months post transition. We intend to provide a more fulsome outlook on fiscal year 2022 in May.

In summary, growth in profit and free cash flow continues to strengthen our balance sheet, and enables our ability to accelerate the building of our innovation pipeline, invest in our centers of excellence, and deliver growth through thoughtful aligned tuck-in acquisitions. This formula describe the right balance between growth and fiscal discipline, while positioning our brands and businesses for long term success. We have the right business model to achieve these goals. We bring together two segments, who share a common bond of well-known brands, passionate end users, and belief in expanding outdoor recreation to great products, policies, and ready to new users, no matter where they live, or what their background might be.

Thank you, everyone. And now we will open the lines and take your questions.

Questions and Answers:

Operator

[Operator Instructions] Alright, we have a question from James Hardiman. [Operator Instructions] Alright, we’ll go ahead and take your question.

James Hardiman — Wedbush Securities — Analyst

Thanks. Can you hear me?

Christopher T. Metz — Chief Executive Officer

Hey, James, we can hear you. Just fine now.

James Hardiman — Wedbush Securities — Analyst

Okay. Great. So sort of a question and then maybe just a little bit of clarification. So obviously, there was a lot going on in 2020 that would contribute to the growth we’ve seen out of shooting sports. Obviously, social unrest of the pandemic, I think the assumption was that we get into 2021 and things would sort of cool off. The opposite appears to have been the case. The mix numbers look like they really accelerated.

So maybe sort of talk us through whatever you can in terms of what you’ve seen since the beginning of the year. Obviously, with the fest with the democrats holding legislative power for the first time a while, it seems like a big deal for this space. Even though it seems pretty far down the list of both of legislation priority. So maybe just talk us through what you’ve seen year-to-date? And then the FBI contracts sort of seems like a big deal. When did that start? Is there any way to size that from a financial impact perspective?

Christopher T. Metz — Chief Executive Officer

Yes, so James, certainly a good question. And something that we think through every day, every week, every month here as we go through the remarkable events of calendar year 2020. And what made the 2020 different, certainly for the ammunition business that you’re referencing is it was completely different than any previous surge we’ve seen. Previous surges had a large tentacle that surrounded or was emanated from second amendment political legislative issues. And what we saw starting spring of last year with COVID was a pent up, work-from-home, let’s get outdoors type of surge. And that certainly helped our shooting and some of the activities.

Then that moved into civil unrest. And we saw a lot of folks looking for self-sufficiency and looking for personal protection. And then as we moved into the fall season, we saw hunting at record numbers. And, as I mentioned in my script, hunting licenses were up 12%, all of this contributing to demand. And remarkably, we didn’t see any run up from the political general election. Then when things went maybe a little bit different, we’ve seen a recent a political impact on our ammunition business. So I think in summary James, what we saw in 2020 has not only slowed down or evaded, it’s actually increase in demand. So the demand continues to be strong. We’ve seen some of the highest levels of demand frankly in the months that approach the end of the calendar year 2020.

And, frankly, as we look forward here we don’t have a crystal ball that’s perfectly clear. But, we see this continuing for the foreseeable future, and it’s also the knock on effect on our outdoor products business, because you can see the robustness that we saw on the second quarter continue into the third quarter. And we feel that momentum carrying forward.

Now as relates to the FBI contract, fortunately, we have Jason here, and I’m going to let him add some color to this. But it is a real, real coup for our team. And really, a kudos to our team for securing this. And as you know, we don’t necessarily comment on long-term, the potential impact and necessarily the size of it, because as you know that whenever they contract for it could exceed that number, depending upon how many rounds they shoot. But Jason the FBI contract?

Jason Vanderbrink — President of Ammunition

Yes. Thanks, James. On that contract, we expect deliveries to start in quarter one of fiscal 2022. As Chris mentioned, we do not size up that contract, because there’s lots of unknowns. What’s nice about this contract is it certainly gives us a halo effect when you win such a prestigious contract, especially with the bureau. So our business units, with the new product that we delivered for the FBI, we expect that we’ll have some sales [Technical Issues] want to size that contract up on the revenue side.

James Hardiman — Wedbush Securities — Analyst

Okay. Thanks for the color, guys. I appreciate it.

Christopher T. Metz — Chief Executive Officer

Sure, James. Thank you.

Operator

Alright. [Operator Instructions] The next question is from Gautam Khanna with Cowen & Company.

Daniel Flick — Cowen & Company — Analyst

Yes. This is Dan on for Gautam. Thanks for the question. So we were curious on ammo pricing, so prices obviously increased a lot at the retail level. But we’re wondering like, how much of that benefit is Vista able to capture? And kind of like how do your pricing agreements work with customers? Is it spot or contracted or some mixture of the two? Just kind of any level of detail that you can provide into that how that relationship works would be helpful? Thanks.

Christopher T. Metz — Chief Executive Officer

Yes. Sure, Dan. Let me answer that for you. So ammo pricing is a factor of many things. And the primary factor is us looking at the input costs that we have to absorb. And then us looking at market conditions and what we think is an appropriate price given all of the circumstance we see. And what we are seeing on the input side is, is the dramatic increase in our raw materials, be it copper, be it lead, be it corrugated tape or what have you, we’re seeing over time we need to increase as we’re running continually flat out in our facilities. And in last 90 days we have seen increase in freight as every American corporation has seen. And so that all goes into our thinking as it relates to pricing.

Now in terms of the sharing and pricing, it’s a value chain that contributes to everybody. And so our distributors, our buying groups are very healthy, our customers and our dealers are very healthy as well, from a — just a financial standpoint in this environment, as evidenced by just basic supply and demand. So, we don’t necessarily size up how that pricing is shared, but you can see in the results that we posted, that we’re at all-time highs, as it relates to what our profitability is. And we need to be there, because we see continued pressure.

And we are constantly evaluating the pressure we see and making sure that, with the way we are pricing it is fair in the marketplace. So we’re very careful, because we know that we supply a lot of products to peoples self-defense and their hobbies and their passions and what have you. So we try to keep pricing at a level that is as fair as we possibly can make it. Now, the majority of our pricing is not contract base, it goes with the commercial market, but we do have contracts with law enforcement, with military, that is locked-in.

Operator

Alright. We’ll take the next question from Scott Stember with CL King.

Scott Stember — CL King — Analyst

Good morning. Thanks for taking my questions. And congrats on the continued success. Again following up on James’ question before about I guess the sustainability of the mix. Maybe if you could talk about, how the usage of your products is differing [Phonetic] from I guess the past surges? And how that really speaks to how things can sustain at these positive levels? So maybe not at just growth rate, but just a general going forward. And then after that maybe just talk a little bit more about the Peloton CamelBak field and maybe size that up for us a little bit. Thank you.

Christopher T. Metz — Chief Executive Officer

Sure, Scott. So let me first talk about the CamelBak and the Peloton relationship. And that now address the ammo sustainability, and let Jason add on to it. But, so the CamelBak and Peloton as you can appreciate is a confidential contract. We don’t typically share terms conditions what have you on our contracts. But it is a super, super win for the CamelBak team. It takes one of the great brands in the recreational space and Peloton with one of the iconic brands in the outdoor space in CamelBak and marries the two together. So we’re really, really excited about what this brings to us.

The ammunition surge, I mean again what I alluded to on James’ question, is the fact that it just very, very different. And it’s probably the broadest base surge we have seen. So it’s not just 556, 223 calibers, its 9 millimeter self-defense, its hunting loads, its center fire long rifle, hunting loads, waterfowl. You name it across the board, it is — it’s every one of the categories has seen a surge. And we have mentioned 8 million new users, a lot of which are people call it women what have you they are getting into sports and shooting and enjoying for the first time.

So it is very broad based. And Jason, anything else that you see?

Jason Vanderbrink — President of Ammunition

Thanks, Scott. I would add that as Chris mentioned, it is an extremely broader base than previous surges. I would venture you to go to a range that isn’t busy today, whether it just be for recreational shooting. Hunting sales were up 12%. We hope that continues and we think it will continue. So it’s a much broader surge than we have seen in previous years, which is good, because one is tied to one or two calibers as some previous surges were, that’s not good for manufacturing of the product.

So everything seems to be doing well right now across broad base categories, where our brands fit, especially on the performance side for hunting ammunition and personal defense we have a nice share of that market. So it’s a win-win for us and for the industry as a whole for the longevity of it.

Scott Stember — CL King — Analyst

Got it. Thank you.

Operator

Alright. The next question is from Matt Koranda with ROTH Capital.

Matt Koranda — ROTH Capital — Analyst

Hey, guys, thanks for taking the question. Just wanted to cover the Remington ramp if we could. I know you guys said it contributed a bit faster-than-expected this quarter. Maybe, if you could cover a little detail on what enabled that faster ramp? And how much it contributed to the quarter in terms of revenue would be helpful?

And then I think you mentioned, Jason, that Remington may be accretive as soon as the first quarter of this coming fiscal year. So just wanted to understand is that earnings accretive or margin accretive? And how should we think about the EBIT margin contribution that Remington as you get fully ramped the middle of the year, next year?

Christopher T. Metz — Chief Executive Officer

Good question. We’ll let Jason address how this thing has progressed for us, because I think what he and his team have done is a remarkable job of — in the early stages of integrating that business much, much differently than we have with previous acquisitions. And it’s right in our wheelhouse, and Jason’s team. So Jason?

Jason Vanderbrink — President of Ammunition

Matt, on the integration itself, obviously, we did exceed our expectations for the quarter. I’ll let Sudhanshu talk about the accretive remarks on it. But the ramp up plan is going well. As you can imagine when you have to hire 100s of people and train 100s of people, at the same time fighting raw material outages, it has its challenges. But our team has done a fantastic job. The workforce in Lonoke, Arkansas is remarkable. And we expect this ramp up plan and integration plan to go above schedule for the rest of our year and in the fiscal ’22.

Sudhanshu Priyadarshi — Senior Vice President and Chief Financial Officer

And Matt on the sales point we talked about in Q3, we did roughly $15 million and Q4 we are doubling it. We think $30 million with Remington and Hevi-Shot. So — and after that, it’s basically we seeing about by mid fiscal year we will go $50 million plus run rate. So it will be earning accretive in Q1 for us. And we are very excited about this deal. And it’s really, really working well the way Jason’s team is leading it.

Matt Koranda — ROTH Capital — Analyst

Great. And if I could ask one follow-up, if I could here. Just a more modeling based question. But in the earnings per share guidance with $0.60 at the midpoint, you guys mentioned you’re expecting some carrier and freight headwinds in terms of what you’re factoring in. Could you help us quantify that a bit maybe in the fourth quarter guidance, if at all?

Christopher T. Metz — Chief Executive Officer

Yes, so Matt, we don’t typically size that up. But as I mentioned, it is freight, as you talked about its container shortages, which we’re going in negotiating every day, different rates to make sure that we’re being smart about getting product on the water, where we’re in a source product position. We’ve also got increase in commodities, we’ve got various input costs all factored into the EPS model that we had. And frankly, some of the stuff is, we expect to be one-time events, I mean, the freight increases and the containers, it’s going to work itself out at some point in time. It’s going to go on through the quarter may even go on into the first quarter of our next fiscal year.

But a lot of the folks that I talked to my peers and other companies and our suppliers suggest that some of the input costs is going to abate. And one thing, I didn’t talk about is tariffs, which we’ve seen a negative effect on tariffs, not big, but certainly something that has impacted a couple of our businesses and we anticipate that that will continue as we go forward.

Matt Koranda — ROTH Capital — Analyst

Okay. Great, very helpful. I’ll turn it back to you guys, thanks.

Operator

Alright, the next question is from Mark Smith with Lake Street Capital Management.

Mark Smith — Lake Street Capital Management — Analyst

Hi, guys. Just wanted to ask about e-com and as it applies to ammunition business. Can you walk us through and quantify or maybe even talk about the growth that you’ve seen in e-commerce for ammo? And then with that, can you also talk about the backlog in ammunition and how much of that is maybe made up of e-com or how much you can fulfill of that backlog through your e-commerce channel?

Christopher T. Metz — Chief Executive Officer

So good morning, Mark. And this is Chris, I’ll take those a couple of questions. So e-com, we had actual slowed down versus previous quarters in our ammunition business. And it was all because of the choice we made to ensure that our retail and e-tail partners got their fair share. And so, Jason and his team in many cases have limited purchases to two boxes. So we know we can sell more in e-com, but we made the on-purpose decision to support our customers and our dealers, who are working so hard to fill the demand. And we’ll continue to evaluate that as we go forward.

Now, the backlog, we gave a general size of it last time. And as I alluded to in my prepared remarks last quarter, we don’t intend to continue to do that. Because there’s a number of factors that influence and impact that backlog. We just did it at the time to give people an indication of the demand surge that we are seeing. And so it’s safe to say that, as I’ve alluded to earlier, the demand has not only continued, but we’ve seen a strengthening of the demand, which would lead to a backlog across all of our channels of distribution, including our own e-commerce.

Mark Smith — Lake Street Capital Management — Analyst

Okay, thank you.

Christopher T. Metz — Chief Executive Officer

Yes. Thanks, Mark.

Operator

Alright. And the next question is from Ryan Sundby with William Blair.

Ryan Sundby — William Blair — Analyst

Sure. Hey, good morning. And thanks for taking my questions. And congrats on the quarter. Maybe if you could talk a little bit more about the rationale for lower the long-term less fee average ratio of 1 times to 2 times. And is it a target that you’d be willing to flex off against, if you see the right deal and then work your way back down? I’m just trying to understand the background on that. Thank you.

Sudhanshu Priyadarshi — Senior Vice President and Chief Financial Officer

Ryan, this is Sudhanshu. As I mentioned in my prepared remarks, we are in cyclical industry. And we want to be more conservative in terms of the balance sheet management. We believe that the kind of earning and cash flow we will generate 1 times to 2 times, it still gives us enough flexibility to invest internally to do tuck-in acquisitions. And we believe that that’s good for the company for the long term balance sheet management.

Ryan Sundby — William Blair — Analyst

Would you be willing that go above the 2 times with the right deal comes along or exactly on the cap that you won’t go fast?

Sudhanshu Priyadarshi — Senior Vice President and Chief Financial Officer

So right now, our long-term guidance is one times to two times. And we believe that gives us enough flexibility to do the right type of deals, which will be accretive to us.

Christopher T. Metz — Chief Executive Officer

Yes. So Ryan let me add a couple points to that. Sudhanshu underlying the cyclicality nature of our business. And so what we don’t want to do is run even a remote risk that we get back into the capital leverage situation that we got into few years ago. So we’re very mindful of that. However, that being said, we’re seeing a lot of opportunities to drive organic growth. And we’re seeing increasing opportunities on the M&A side. But as everyone knows, multiples are high right now. So as much as we’re excited about the potential M&A activity out there, we want to be really good stewards of capital.

And so where we see opportunities and what we’re looking at now, we feel like with the cash generation that we are demonstrating, and what our projections are we feel that we can stay within that one times to two times and do everything we need to do.

Ryan Sundby — William Blair — Analyst

Perfect. Thanks for the color.

Operator

Alright, and the next question is from Eric Wold with B. Riley.

Eric Wold — B. Riley — Analyst

Thank you. Good morning. So moving to follow-on questions to the last one, kind of, the acquisition landscape and your goal for tuck-in. Should we should look at the $16 million price for Hevi-Shot and the $81 million for Remington and kind of bookend to kind of what you feel is an attractive, kind of, tuck-in acquisition range? Or what would get you comfortable going above that high-end of that range or that is the range?

Christopher T. Metz — Chief Executive Officer

Yes. So Eric, the way we’re looking at is a bit different in terms of how we value the businesses. We valued both, and as you said, they’re kind of bookends. So $181 million, $116 million, we didn’t set out to play it that way. We looked at both independently and saw great opportunities to get them at attractive prices to leverage the synergies we have in the centers of excellence that we are building, and make them very accretive. So, we purposely not boxed ourselves into a size, because they need to meet our criteria, and if they come in varying sizes we’re absolutely fine with that.

Now I think it’s fair to say, we’re going to look at really, really small acquisitions. They had taken awful a lot of our teams precious resources. We look at everything and look at it has an opportunity costs. So, please don’t take those as bookends, we look at everything independently.

Eric Wold — B. Riley — Analyst

Got it. And then if I — just simple, I know you don’t want to comment on backlog any quarter. So just maybe you can share anything, kind of, last quarter and how you’re going to added on to this quarter. What is the approximate, kind of, annualized — annual manufacturing capacity right now taking into account, kind of, initially what you have gotten from Remington and Hevi-Shot? And what do you think over the next 12-months as those acquisition gets further integrating that get improved in the company. What could you see your total ammo manufacturing capacity to be in 12-months from now?

Christopher T. Metz — Chief Executive Officer

Yes. So Eric, we certainly look at it. We want to be mindful of the total capacity within the industry, but we don’t know the exact size. We’re working as best we can with different outside sources to understand how and where capacity is being put in, because in previous surges there’s a lot capacity that was added.

What we’re doing is smartly adding capacity to our organization without adding to the industry. One of our key competitors I think has done something similar on the Lake City front. So it’s one of those things where I think the stronger getting stronger and adding capacity in a smart, smart manner to keep the market rationale. And I think all of us are looking internally, how we can be more efficient, can we reduce SKUs, can we get more dedicated runs, can we mix in a way that allows us to serve the consumer better.

Eric Wold — B. Riley — Analyst

Sorry, about that. This is for Chris, I am talking here not the industry capacity, just to get their capacity.

Christopher T. Metz — Chief Executive Officer

Yes. So Eric, what you see us doing right now, is running flat out. I think that gives you a good window into where we sit now. Remington provides great upside for us. Hevi-Shot provides more capacity, that’s what I am referring to. So, I think you’ve got some good information that we share that, that gives you a feel for where our capacity really lies.

Eric Wold — B. Riley — Analyst

Perfect. Thanks, Chris. Thanks, guys.

Christopher T. Metz — Chief Executive Officer

Thanks, Eric.

Operator

Alright. And the next question is from Brian DiRubbio with Baird.

Brian DiRubbio — Robert W. Baird — Analyst

Good morning. Just Chris, Sudhanshu on raw material inflation. Are you doing anything to hedge that inflation cost over the year-end medium term?

Christopher T. Metz — Chief Executive Officer

Yes. Hey, Brian, we have talked about hedging in the past and I think it’s certainly helped us over the last 12 to 18 months a bit, and it will continue to help us a bit. But when we look at the spot rates of — or the hedge rates based upon the current spots, we’re very careful about locking into something that we feel like is not a smart bid. So we look at the spot rates now, we see them at highs, so we’re not excited about jumping in and locking our team into hedge positions, that we don’t think are smart. But we continue to evaluate Sudhanshu, Andy Keegan, who you all know and our whole team along with Jason and his team, and frankly outside advisors and bankers that we work with, look at it very, very holistically.

Sudhanshu, do you want to add anything to that?

Sudhanshu Priyadarshi — Senior Vice President and Chief Financial Officer

No, Chris. This is our top priority we keep watching it, and we feel that we will do the right thing as we get the different type of advice.

Brian DiRubbio — Robert W. Baird — Analyst

Great. And maybe just one last one. If you can just given the changes in the competitive landscape, can you talk about how the current ammunition environment is in terms of the competition, imports versus, sort of, a consolidated base here in the US?

Christopher T. Metz — Chief Executive Officer

Yes. So we — the competitive landscape is — it’s a competitive industry, right? You have got a lot of good competitors that we work with in many respects on different initiatives, and I don’t think, Jason we see the landscape changing too much, as you see surges in this where demand is outstripping supply you’re going to see imports continue to grow as well. Because it’s just — consumers can’t get the brands they want initially.

Jason Vanderbrink — President of Ammunition

Yes, I think history shows us that times of a surge imports come up, when there’s not a surge our customers much more prefer a domestic manufacturer. So it puts us in a good seat with the brands that we’ve acquired recently.

Brian DiRubbio — Robert W. Baird — Analyst

Great. I appreciate the thoughts.

Operator

[Operator Instructions] Alright, we did just get another question in from Jim Chartier with Monness, Crespi, and Hardt.

Jim Chartier — Monness, Crespi, Hardt — Analyst

Good morning. Thanks for taking my question. Jason…

Christopher T. Metz — Chief Executive Officer

Good morning.

Jim Chartier — Monness, Crespi, Hardt — Analyst

I was just wondering, if you could talk — good morning. Can you just talk about where you think EBITDA margins for the Remington business could get to. Can they get on par with the rest of your existing business? And is it a factor of sales all and to get there, so what sales volume was in more function of just kind of training just the workforce there that should bottom on recently? Thanks.

Christopher T. Metz — Chief Executive Officer

So Jim, when we look at the Remington business, where Jason and his team are making herculean efforts to take a facility from a cold start in a demand environment that we’re in right now and produce at the highest level. So we’ve got challenges on the material front, we’ve got challenges on the labor front. And everybody in that area wants to come back and work for us, which is terrific, but we have to train folks, retrain folks that are coming off furlough and make sure that they’re cross trained.

So we’re doubling the business this quarter, which Sudhanshu prepared in his remarks is almost say doubling again in the ensuing quarters as we get kind of to the middle of next fiscal year. So that Remington business, as you look at the challenges we’ve had will not be at Federal, Speer and CCI margin rates this next 12-months. But when we look out beyond that, there’s no reason why it can’t be at Federal rates. That’s the way we look at it and everything seem so far would support that.

Jim Chartier — Monness, Crespi, Hardt — Analyst

Great. And then can you just talk about what the order book for the outdoor products business looks like? And how retailers have kind of planned that business for spring of next year?

Christopher T. Metz — Chief Executive Officer

Yes, the outdoor products business is equally is exciting. We’ve seen the same surge in demand, we’ve seen demand continue. And again, from what we see right now, we see continuing, right? I mean, there’s a number of factors for it, people have rediscovered the outdoors again, COVID vaccination rates, I think are surprising some people, but they’re not as fast as they could be. And so, we see all the trends that we’ve continued to see continuing, right? So people are cooking outdoors, people are still a bit reticent to go to restaurants, people are riding their bikes, we see e-bikes coming on stream. A lot of stuff that factors into our demand continuing, which we’re very excited about.

We didn’t talk much about outside the US, but we’ve got brands like Bushnell and CamelBak, and Bell and Giro that have good footholds in areas of the world that, frankly, are struggling more than the United States is. And so that pent up demand is there. We know it’s there. And we also expect our ski-related businesses to recover as mountains open up. So yes, I mean it’s a good time for I think folks in the outdoor recreation business and those who are most innovative and have really good brands tend to prosper in times like this.

Jim Chartier — Monness, Crespi, Hardt — Analyst

Great. Thanks, and best of luck.

Operator

Alright, and there appear to be no further questions at this time.

Christopher T. Metz — Chief Executive Officer

Thank you, operator, and thank you everybody for your time today. And we look forward to chatting with you in another 90-days.

Operator

[Operator Closing Remarks]