Lower demand for modern sporting rifles hurt Smith &
Wesson's overall sales. Source: Smith & Wesson Holding
Smith & Wesson
's namesake products might be deadly accurate, but that sure
didn't help the gun-maker hit Wall Street's targets yesterday
evening. To be sure, shares of Smith & Wesson Holding
Corporation fell by 14% early Wednesday following the release of
its mixed fiscal first-quarter 2015 results.
Specifically, Smith & Wesson saw quarterly revenue fall
22.9% year over year to $131.9 million. For that, we can mostly
thank lower consumer demand for modern sporting rifles, which
were responsible for a full 87% of the decline. However, Smith
& Wesson's handgun sales
continued to perform well
, driven once again by strength in small polymer handguns.
Meanwhile, Smith & Wesson repurchased another $30 million in
shares during the quarter, which completed all share repurchases
authorized by its board, but still translated to a 35% drop in
net income per diluted share to $0.26.
Of course, that wouldn't have been so bad in isolation;
analysts, on average, were expecting lower earnings of $0.25 per
share on slightly higher sales of $133.9 million.
reason Smith & Wesson stock hit the deck
But there's another reason investors are running for cover today:
For the current quarter, Smith & Wesson sees revenue between
$100 million and $110 million, and earnings per diluted share
between $0.04 and $0.08. The mid-point of both ranges sits well
below analysts' estimates, which called for earnings of $0.28 per
share on sales of $136.8 million.
Smith & Wesson also lowered its full fiscal year 2015
guidance. As it stands, it expects net sales between $530 million
and $540 million, with earnings per share between $0.89 and $0.94
-- both big drops from its previous guidance ranges, which called
for fiscal 2015 revenue between $585 million and $600 million,
and earnings per share between $1.30 and $1.40.
So, what happened? According to Smith & Wesson CEO James
Debney, "We believe the current environment reflects high
inventories industrywide resulting from channel replenishment
that occurred following an earlier surge in consumer buying."
Combine that environment with the firearm industry's typically
slow summer season, and it's not hard to see why Smith &
Wesson had no choice but to reduce guidance.
Then again, investors can take some solace knowing Smith &
Wesson isn't alone. Given his "industrywide" comment, it should
come as no surprise shares of competitor
simultaneously plunged around 4% today.
Keep your eye on the (long-term) target
But there are a few silver linings, here. First, Debney says, is
that today's high inventory levels should largely be restricted
to the current quarter. After that, the market is expected to
"return to a more normalized environment."
Even then, keep in mind one of Smith & Wesson's key
strengths is its focus on manufacturing flexibility. By both
maintaining a temporary workforce and outsourcing production of
certain key components -- in stark contrast to the decidedly more
permanent manufacturing infrastructure
from Sturm, Ruger -- Smith & Wesson is able
to more efficiently respond to unfavorable market conditions such
as this. Sure enough, Debney confirmed during the subsequent
earnings conference call that, "Now is the time to dial back
these outsourcing arrangements, and we have begun that
At the same time, Debney insisted Smith & Wesson's
strategy isn't to "simply react to the market, but rather manage
our business for the long term in a manner that gives us the
ability to take market share, independent of whether or not the
market is growing or shrinking."
But while previous
in domestic unit sales to declines in NICS background checks made
it possible to gauge the extent of Smith & Wesson's market
share gains, management this quarter states high inventory levels
and "noise in the channel" makes it more difficult to measure
right now. Nonetheless, they assert the company's own internal
monthly analysis shows Smith & Wesson remains the market
leader in both handguns and modern sporting rifles.
Don't get me wrong: I can't blame the market for taking a big
step back today given Smith & Wesson's big guidance
reduction. But in the end, today's drop means shares of Smith
& Wesson currently trade for an attractive 12 times the
mid-point of this fiscal year's expected earnings. If this
weakness proves temporary, as management claims, I think that
makes Smith & Wesson stock a compelling buy for patient,
Warren Buffett's worst auto-nightmare (Hint: It's not
A major technological shift is happening in the automotive
industry. Most people are skeptical about its impact. Warren
Buffett isn't one of them. He recently called it a "real
threat" to one of his favorite businesses. An executive at Ford
called the technology "fantastic." The beauty for investors is
that there is an
easy way to ride
to access our exclusive report on this stock.
Is Smith & Wesson Holding Corp Stock a Buy
After Its Revenue Misfire?
originally appeared on Fool.com.
has no position in any stocks mentioned. The Motley Fool
recommends Tesla Motors. The Motley Fool owns shares of Tesla
Motors. Try any of our Foolish newsletter services
free for 30 days
. We Fools may not all hold the same opinions, but we all believe
considering a diverse range of insights
makes us better investors. The Motley Fool has a
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights
reserved. The Motley Fool has a