Smith & Wesson Beats Marginally

Zacks

Leading firearm manufacturer, Smith & Wesson Holding Corporation (SWHC) reported adjusted earnings of 24 cents per share in the second quarter of fiscal 2013, compared with 1 cent per share in the year-ago quarter.

The results of the company were a penny higher than the Zacks Consensus Estimate.

Total Revenue

The company reported net sales of $136.6 million in the relevant quarter, up 47.9% from $92.3 million in the year-earlier period. The year-over-year growth was driven by strong sales across all of the company’s product lines, including its M&P product platform.

Net sales in the reported quarter were nominally higher than the Zacks Consensus forecast of $136 million.

Quarterly Highlights

Gross profit grew to 35.5% of net sales from 26.7% in the second quarter of the previous fiscal. Cost reduction initiatives yielded positive results. Operating expenses, as a percentage of revenue, thus declined by 690 basis points year over year.

The company continues to invest consistently in research and development (R&D) activities to develop new products. In the second quarter of fiscal 2013, the company spent $1.27 million on R&D versus $1.24 million in the prior-year quarter.

Operating income clocked $26.6 million versus $3.4 million in the year-earlier period, increasing an astronomical 682.2%.

Smith & Wesson sat on a firearm backlog of $332.7 million, increasing $182.8 million year over year from $149.9 million at the end of the second quarter of last year.

Financial Update

Cash and cash equivalents of Smith & Wesson as of October 31, 2012, were $61.3 million versus $56.7 million as of April 30, 2012.

Cash from/(used in) operating activities was $13.7 million in the second quarter of fiscal 2013 versus ($2.5) million in the second quarter of fiscal 2012.

Guidance

The company expects total revenue in the third quarter of fiscal 2013 in the range of $126 million to $131 million, reflecting 30% year-over-year growth. GAAP earnings per share in the third quarter of fiscal 2013 are expected between 19 cents and 21 cents.

Total revenue for fiscal 2013 is now expected in the range of $550 million to $560 million, up from the prior forecast of $530 million to $540 million. This reflects an estimated 35% year-over-year growth. GAAP earnings per share for fiscal 2013 are expected between $1.00 and $1.05.

At the Peer

The company competes with Sturm, Ruger & Company Inc. (RGR). The top- and bottom-line results of Sturm, Ruger & Company in the third quarter were higher than the Zacks Consensus Estimates. The Zacks Consensus earnings estimate for the fourth quarter is currently at 64 cents per share.

Our Take

Smith & Wesson continues to post strong results. The firearm maker has surpassed our expectation for the last six quarters. The company’s decision to buy back shares to increase shareholder value is appreciated.

Though the firearm backlog increased 122.2% year over year to $332.7 million it decreased 15.2% sequentially. Whether the sequential decline is only a seasonal effect or an indicator of a diminishing order book is to be seen in the performance of the future quarters.  Smith & Wesson currently retains a short-term Zacks #3 Rank (Hold rating).

Based in Springfield, Massachusetts, Smith & Wesson Holding Corporation was founded in 1852. The company manufactures, designs and supplies a large variety of firearms and related items to its worldwide customers.  The company has 1,346 full time employees and a market cap of $0.71 billion.

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