Firearms and security companies face slowing sales as military
campaigns wind down and crime rates in the country hover near
Sturm Ruger (
), one of the top U.S. gunmakers, is projected to see revenue
slip 6% in 2014 after three years of healthy double-digit sales
increases. Revenue growth at peerSmith & Wesson Holding (
) is expected to slow to 5% this year and to less than 1% in
An October 2013 report from IBISWorld said industry sales grew
an average 8.4% a year from 2008 to 2013. That includes military
arms such as grenade launchers as well as small firearms and
small-arms ammunition, which accounted for 65% of the total.
IBISWorld projected the sales growth rate for guns and
ammunition from 2013 to 2018 will drop to an average 4.5% per
Firearms sales aren't about to fall off a cliff, IBISWorld
analyst Andy Brennan told IBD. But it looks like they'll stumble
a bit, starting this year.
"We still expect positive growth in 2014," Brennan said.
"We're thinking about 6.5% this year. But that's well off what we
experienced in the last two to three years. We estimate sales
grew 20.2% in 2013."
Across the firearms and security industries, companies are
responding with new products and new technologies to appeal to
new customers -- including children.
"What we've seen in the industry is it's really chasing young
consumers," Brennan said.
"They're introducing models that are lightweight, to get them
into the hands of children to boost demand when they become
adults," he added.
Private firearms maker Chipmunk, for example, says on its
website it sells "quality firearms for America's youth."
And Milton, Pa.-based Cricket Rifles says it got its start in
1994. "Working with design engineers, consulting gun
manufacturers, and trademark experts, they created the Davey
Crickett single-shot .22-caliber youth rifle and secured the
rights to the logo 'My First Rifle,' 'Crickett' and 'Davey
Most such guns are used for hunting or, more often, target
"Hunting has declined, but people love going to a shooting
range," Brennan said. And it's often a family affair. "It's
become a hobby. People used to go out walking and hiking but
shooting now competes with those."
Last month, at the Shooting, Hunting, Outdoor Trade show
(SHOT) in Las Vegas, the nation's largest trade show for
professionals involved with shooting sports and law enforcement,
guns with pink and purple handles -- designed to appeal to women
-- were in high profile.
Analysts say pink-handled guns for women and lighter ones for
children aren't likely to boost sales significantly, but can be
seen in part as a desperate measure to try to stave off slower
The Fear Factor
Department of Justice figures show violent crimes in the U.S.
fell from 80 per 1,000 adults in 1993 to 24 per 1,000 in 2012.
But gun opponents react strongly to tragedies such as the Sandy
Hook elementary school shootings in December 2012 by renewing
calls for legislation to limit or ban sales of certain firearms,
like the popular AK-47 repeating rifle.
Gun owners and people fearing they won't be able to get
weapons in the future also react strongly -- by stocking up on
guns and ammunition.
Such concerns were stoked by the election and re-election of a
president promoting anti-gun legislation. This helped firearm
sales nearly double from 2004, when the industry sold $7.97
billion of products, to 2014, when sales are projected to hit
$15.7 billion, IBISWorld said.
Last year, Smith & Wesson sales surged 43% to $588
million. Sturm Ruger sales jumped 50% in 2013. Both stocks have
fallen sharply from January highs. But the Security/Safety group
ranks a strong 39 on IBD's list of 197 industry groups, buoyed in
part by some smaller names, including security new issueAllegion
In addition to firearms makers, the group includesTaser
). Taser is known for its electronic stun guns, widely used in
law enforcement. Taser's stock boasts a 94 IBD Composite Rating,
meaning it has outperformed 94% of all stocks on key metrics such
as sales and profit growth.
"Our biggest differentiator is our understanding of the law
enforcement and safety niche," CEO Rick Smith said.
In February 2012, Taser introduced the Axon line of on-officer
wearable cameras and Evidence.com, a website to help agencies
build digital evidence systems.
Smith said the company, which is frequently sued, has special
knowledge about evidence management.
"We litigate a lot. We know the types of cases our customers
deal with," he said.
Smith declined to name specific market areas that Taser plans
to enter because the company is in a quiet period ahead of Q4
earnings results on Feb. 26.
Asked what will drive industry growth in general this year, he
replied: "The continuing interest around mobile apps on
smartphones and tablets deepens. That trend will create a lot of
opportunity" to equip police, military and citizens with smart
mobile security devices.
Home Security Makeover
Also making up a big piece of the security and safety group
are security systems companies likeADT (
) and service companies such asBrink's (BCO), known for its
armored-car delivery service.
ADT is the largest company in the group, with market
capitalization of $5.7 billion and annual revenue north of $3.3
billion. The leader in the U.S. home-security market, currently
with about 25% market share, the 140-year-old company was bought
by diversified manufacturerTyco International (TYC) in 1997, then
spun off in September 2012.
CEO Naren Gursahaney says there's lots of room for growth.
"Only 19% of homes in the U.S. and Canada have a monitored
security system, and the home automation industry is still in its
infancy," Gursahaney told analysts on a Jan. 30 earnings
ADT has tough competition as communications giantsAT&T (T)
andComcast (CMCSA) ramp up security offerings. AT&T's Digital
Life, for example, lets users remotely control home-security
ADT might also feel some competition from diversifying
Brink's. Its earnings per share over the last three quarters rose
from 0% to 26% to 36% last quarter. Consensus is for a 46% hike
in EPS this quarter.
CEO Tom Schievelbein told IBD in an email interview that after
diversifying globally -- 77% of 2013 revenue came from
international markets -- Brink's is moving into adjacent
industries such as prepaid credit cards and payment
He also noted the company is "exploring a potential re-entry
into the residential security market," which Brink's exited in
Smarter Guns, Manufacturing
In the firearms market, technology presents both opportunity
and controversy for Smith & Wesson, Sturm Ruger and
"A hot topic and trend that has been popping up is increased
interest in smart guns," IBISWorld analyst Maksim Soshkin said.
Smart guns, which are expected to hit the market later this year,
will use technology such as fingerprint ID chips to recognize the
user and shoot only when used by the proper person.
When they come to market, that might trigger a New Jersey law
that mandates all state dealers only sell smart guns, Soshkin
said. More than a decade ago, New Jersey passed a law that within
three years after the technology becomes available, all guns in
the state must be smart guns.
On the manufacturing side, "3D printing has the potential to
change the way guns are manufactured," Soshkin said. A company
called Solid Concepts, for example, made a metal Browning handgun
with a 3-dimensional printer, which uses a software "blueprint"
to make devices.
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