Smith & Wesson Beats on Q1 Earnings, Down on Lower Outlook - Analyst Blog

Smith & Wesson Holding Corp. ( SWHC ) reported first-quarter fiscal 2015 (ending Jul 31, 2014) earnings from continuing operations of 26 cents per share, beating the Zacks Consensus Estimate by a penny. The number was, however, lower than the year-ago earnings of 40 cents per share as sales remained weak.

The company's share price plunged 11% during after-hours trading yesterday on the lowered guidance due to high inventories of modern sporting rifles industry-wide.

Operating Highlights

Total revenue in the quarter decreased 22.9% year over year to $131.9 million, missing the Zacks Consensus Estimate of $134 million by 1.7%. Lower long gun sales, including modern sporting rifles, were the main reason for the top-line decline. Yet, handgun sales remained strong during the quarter.

In the quarter under review, gross profit decreased 32.5% year over year to $49.1 million. This corresponds to a gross margin of 37.2%, down 540 basis points year over year, due to lower sales volumes of modern sporting rifles and related decrease in fixed-cost absorption, combined with three less production days than the first quarter last year.

On the cost front, operating expenses were $23.3 million, or 17.7% of revenue, compared with $24.8 million, or 14.5% of revenue recorded in the first quarter of fiscal 2014.

Operating income in the quarter was $25.8 million, down 46.3% year over year.


As of Jul 31, 2014, the company had cash and cash equivalents of $83.5 million versus $68.9 million as of Apr 30, 2014. Operating cash stood at $10.8 million for the first-quarter fiscal 2015 while capital expenditure was $14.6 million.


For its fiscal second quarter 2015, Smith & Wesson expects net sales in the $100-$110 million range. Earnings from continuing operations are expected to come in between 4 cents and 8 cents per share for the upcoming quarter.

For fiscal 2015, sales are now expected to be $530-$$540 million, sharply lower than the $585-$600 million expectation the company laid out earlier. Earnings will likely be 89 cents to 94 cents per share this year, compared with $1.30 to $1.40 expected earlier.

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 the 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 ebbed to a large extent. This is reflected not only in the sales decline in the reported quarter but also in the 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 for 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 second-quarter 2014 earnings of $1.12 per share, missing the Zacks Consensus Estimate of $1.28 by 12.5%. The reported figure also plunged 31.3% from $1.63 per share earned in the year-earlier quarter on lower sales.

TASER International Inc. ( TASR ) reported earnings of 7 cents per share during the second-quarter 2014, beating the Zacks Consensus Estimate by 2 cents. The beat was driven by higher law enforcement weapon handle sales. However, the quarterly figure was lower than the year-ago profit by a penny.

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 Nasdaq, Inc.

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

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