Leading firearm manufacturer,
Smith & Wesson Holding Corp.
) reported second quarter of fiscal 2014 results after the market
closed yesterday. Earnings from continuing operations were 28
cents per share in the second quarter of fiscal 2014, beating the
Zacks Consensus Estimate of 21 cents by 33.3%. The reported
figure also increased 16.7% from the year-ago profit level of 24
cents. The bottom-line gain came on the back of higher demand for
handguns. Shares of Smith & Wesson shot up more than 5% in
after-hours trading on Dec 10, 2013.
The company reported net sales of $139.3 million in the quarter,
up 2.0% from $136.6 million in the year-earlier period. The
year-over-year growth was driven by strong customer demand for
handgun sales, which surged 27.4%.
Since the reelection of President Obama last year gun sales have
surged, on fears of tighter regulation for weapons in the wake of
a series of unfortunate shooting incidents in the recent past.
The Boston Marathon terror attack on Apr 15, 2013 and the tragic
shootout at the Sandy Hook Elementary School Newtown, Connecticut
on Dec 14, 2012 had sparked off fierce controversy about the
proliferation of firearms.
Net sales in the reported quarter were higher than the Zacks
Consensus Estimate of $137.0 million.
It is worth noting that the company had fewer manufacturing days
in the fiscal second quarter 2014. This was due to a two-week
annual factory shut down and a previously announced downtime for
the company's enterprise resource planning (ERP) implementation
initiated early in the quarter.
Smith & Wesson expanded its gross margin by a significant 610
basis points year over year to 41.6%. The increase was
attributable to a favorable product mix, absorption, and
manufacturing efficiencies, along with the absence of Walther
product sales. The company ended its Walther distribution
agreement at the end of fiscal 2013.
However, operating expenses increased 490 basis points year over
year to 20.9% of sales in the second fiscal quarter 2014. Hence,
operating income clocked $28.8 million or 20.7% of sales versus
$26.6 million or 19.5% in the year-earlier period. Higher
operating cost mostly consumed the significant jump in gross
margin resulting in just a gain of 120 basis points of operating
margin from last year.
Cash and cash equivalents as of Oct 31, 2013, were $52.9 million
versus $100.5 million as of Apr 30, 2013.
Cash from operating activities was $24.0 million in the second
quarter of fiscal 2014 versus $13.8 million in the second quarter
of fiscal 2013.
The company expects total revenue in the third quarter of fiscal
2014 in the range of $140.0 million to $145.0 million. GAAP
earnings per share from continuing operations in the third
quarter of fiscal 2014 are expected between 28 cents and 30
cents. The Zacks Consensus Estimate for the quarter ending Jan
31, 2014, is 27 cents per share.
The total revenue guidance for fiscal 2014 is maintained in the
range of $610 million to $620 million. This reflects an estimated
4.7% year-over-year growth at the midpoint. GAAP earnings per
share for fiscal 2014 are expected between $1.30 and $1.35. The
Zacks Consensus Estimate for the quarter ending Jan 31, 2014, is
$1.33 per share.
The guidance takes into account the expected impact of the
implementation of the company's new ERP system through fiscal
Smith & Wesson continues to post strong results. The firearm
maker has surpassed our expectation for the last ten quarters.
The company gained from a $100 million stock buyback completed
earlier this year and recently authorized an additional buyback
of $15 million.
In fact, Springfield, Mass.-based Smith & Wesson benefited
from the demand leap during the reported quarter. However, as a
caveat, the possibility of a new gun law might have an adverse
impact on gun sales in the future.
Smith & Wesson Holding Corp. manufactures, designs and
supplies a large variety of firearms and related items to its
Smith & Wesson currently has a Zacks Rank #3 (Hold). Other
better-ranked stocks worth buying now include
Alliant Techsystems Inc.
Sturm, Ruger & Company Inc.
Callaway Golf Co.
). While Alliant Techsystems and Sturm, Ruger sport a Zacks Rank
#1 (Strong Buy), Callaway holds a Zacks Rank #2 (Buy).
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SMITH & WESSON (SWHC): Free Stock Analysis
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