Smith & Wesson Beats Q4 Earnings Ests, Shares Fall on Weak Guidance - Analyst Blog

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Smith & Wesson Holding Corp. ( SWHC ) reported fourth quarter fiscal 2014 (ending Apr 30, 2014) earnings from continuing operations of 44 cents per share, beating the Zacks Consensus Estimate of 40 cents by 10.0%. The number was, however, at par with year-ago earnings as sales remained weak.

The company's share price suffered 8.7% on Friday, Jun 20, on a weak guidance. The company expects its sales to likely drop as much as 7% in fiscal 2015.

Fiscal 2014 earnings came in at $1.47 per share, up 20.5% from $1.22 per share earned in the prior fiscal.

Operating Highlights

Total revenue in the quarter decreased 4.9% year over year to $170.4 million but was above the Zacks Consensus Estimate of $163.0 million by 4.5%. Lower long gun sales were the main reason for the top-line decline. Yet, handgun sales remained strong during the quarter.

In fiscal 2014, the company's top line grew 6.7% year over year to $626.6 million.

During the quarter under review, gross profit increased 1.9% year over year to $69.7 million. This corresponds to a gross margin of 40.9%, up 260 basis points year over year, buoyed by a favorable product mix, absorption, and manufacturing efficiencies, accompanied with reduced promotions and the absence of the lower-margin Walther product sales.

On the cost front, operating expenses were $26.7 million, or 15.6% of revenue, compared with $21.6 million, or 12.1% of revenue recorded in the fourth quarter of fiscal 2013. The increase was due to the enterprise resource planning (ERP) implementation initiated in the fiscal second quarter 2014 as well as due to higher sales and associated marketing expenses.

Operating income in the quarter was $43.1 million, down 8.1% year over year.

Financials

As of Apr 30, 2014, the company had cash and cash equivalents (including restricted cash) of $68.9 million versus $100.5 million as of Apr 30, 2013. Operating cash stood at $90.2 million for the fiscal year ending Apr 30, 2014 while capital expenditure was $53.3 million.

Guidance

For its fiscal first quarter 2015, Smith & Wesson forecasts GAAP earnings from continuing operations between 23 cents and 25 cents a share on revenues of $130 million to $135 million.

The first quarter will take into consideration approximately one week of the company's annual two-week shutdown, thereby reducing production by approximately $6 million to $8 million.

For fiscal 2015, the company expects GAAP earnings per share of $1.30 to $1.40 on the back of sales of $585 million to $600 million.

Our Take

As per data from FBI's National Instant Criminal Background Check System (NICS), the number of background checks carried out on people seeking to buy firearms declined in February, March and April, from the year-earlier period.

Since the reelection of President Obama, in 2012, the company had been seeing higher sales on fears of tighter regulation for weapons. A series of unfortunate shooting incidents in the past - the Boston Marathon terror attack on Apr 15, 2013 and the tragic shootout at the Sandy Hook Elementary School Newtown, CT on Dec 14, 2012 - sparked off fierce controversy about the proliferation of firearms.

However, Obama failed to clear a bill through the Congress that would have put restrictions on these guns. With the removal of the threat of restrictions on gun sales, the earlier rush to possess firearms has to a large extent ebbed. This is reflected not only in the sales decline in the reported quarter but also in soft sales guidance for fiscal 2015.

Yet, the Springfield, Ma based firearm maker saw a boost in handgun sales in the quarter, driven by increasing consumer interest in self-defense.

Smith & Wesson Holding Corp. manufactures, designs and supplies a large variety of firearms and related items to its worldwide customers.  

Peer Comparisons

The leading publicly traded U.S. firearms maker, Sturm, Ruger & Company, Inc. ( RGR ) reported first quarter 2014 earnings of $1.22 per share, beating the Zacks Consensus Estimate of $1.11 by 9.9%. The reported figure improved 1.7% from $1.20 earned in the year-earlier quarter, driven by higher sales volume.

TASER International Inc. ( TASR ) sustained its steady performance in the first quarter of 2014. It reported earnings of 6 cents per share during the quarter, at par with the year-ago level. The reported figure surpassed the Zacks Consensus Estimate by 2 cents. The beat was driven by record international sales and higher bookings of EVIDENCE.com and AXON.

Zacks Rank

Smith & Wesson currently has a Zacks Rank #3 (Hold). A better-ranked stock worth buying now is Malibu Boats, Inc. ( MBUU ) holding a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: RGR , SWHC , MBUU , TASR

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