Obama Doesn't Want Your Guns

Out at the shooting range I frequent, I'm often informed (and in language not always suitable for a family publication) that President Obama is out to "take our guns." In investing circles, this same argument gives reason to buy (because there could be short-term strength from hunters stocking up on firearms) or sell (because of long-term political threats) firearms maker Sturm, Ruger (NYSE: RGR  ) , non-lethal weapons maker Taser (Nasdaq: TASR  ) , ammunition makers Olin (NYSE: OLN  ) and Alliant TechSystems (NYSE: ATK  ) , and ammo retailers Cabela's (NYSE: CAB  ) and Dick's Sporting Goods (NYSE: DKS  ) .

So it's with some pleasure that I report today: Another quarter has passed, and the jackbooted stormtroopers of an alleged nanny state have yet to appear on my doorstep, demanding entry and forfeiture of my firearms. So far as I can tell, Obama has no interest whatsoever in my guns. Problem is ... no one else seems to want 'em, either.

At least, that's seems to be the upshot from yesterday's earnings report out of Smith & Wesson (Nasdaq: SWHC  ) . For all that CEO Michael Golden spoke of "solid execution in firearms" and urged investors to take into consideration the "challenging year-over-year comparisons" S&W faced, the fact remains: Sales were down nearly 7% for the fiscal first quarter 2011. Earnings dropped by more than half to just $0.10 per share. And that's just the beginning of the bad news.

I'd love to be able to tell you this was a "one-quarter blip" on S&W's prospects, but after digging into the details of Thursday's report, I fear the tough times may only be beginning. "Firearm order backlog" dropped 58% between fiscal Q1 2010 and fiscal Q1 2011, while even the successful Perimeter Security division saw a 33% drop in backlog -- suggesting future sales could be worse than sluggish. Yet even as demand for S&W's wares is waning, S&W continues to pump more product into the pipeline. Despite the steep sales decline, S&W confirmed that its inventories of unsold goods are still climbing -- up 23% year-over-year.

Result: Free cash flow at Smith & Wesson -- which wasn't all that good even last year, at negative $6.2 million -- fell off the proverbial cliff in fiscal Q1 2011, as the company burnt through $14 million.

Foolish takeaway
Over the past 12 months, as Smith & Wesson boasted of "earning" a cumulative $26.2 million in "profits," the firm has in fact managed to generate free cash flow on negative $2 million. If you're going to worry about something posing a real threat to S&W -- this is the one you should be focusing on.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. So... won't you post a few thoughts of your own below?


Read/Post Comments (4) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 12, 2010, at 8:50 AM, JD1459 wrote:

    Obviously Motely Fools are not aware of the Obama administration signing the United Nations Small Arms treaty.

    http://www.washingtontimes.com/news/2010/may/27/the-un-gun-g...

    This international agreement poses real risks for freedom both in the United States and around the world by making it more difficult - if not outright illegal - for law-abiding citizens to keep and bear arms.

    The U.N. Small Arms Treaty opens a back door for the Obama administration to force through gun control regulations. Threats to the Second Amendment are as real today as ever.

    Back to Smith & Wesson a great American company that makes some of the finest firearms on this planet. The Obama election boosted record sales in 2009 for S&W, sales were normal in 2010, and will increase in 2011, due to their new body guard line that is sold out, and future record Quarterly Perimeter Security Sales.

  • Report this Comment On September 12, 2010, at 8:51 AM, JD1459 wrote:

    Obviously Motely Fools are not aware of the Obama administration signing the United Nations Small Arms treaty.

    http://www.washingtontimes.com/news/2010/may/27/the-un-gun-g...

    This international agreement poses real risks for freedom both in the United States and around the world by making it more difficult - if not outright illegal - for law-abiding citizens to keep and bear arms.

    The U.N. Small Arms Treaty opens a back door for the Obama administration to force through gun control regulations. Threats to the Second Amendment are as real today as ever.

    Back to Smith & Wesson a great American company that makes some of the finest firearms on this planet. The Obama election boosted record sales in 2009 for S&W, sales were normal in 2010, and will increase in 2011, due to their new body guard line that is sold out, and future record Quarterly Perimeter Security Sales.

  • Report this Comment On September 15, 2010, at 10:32 PM, dzuskin wrote:

    "non-lethal weapons maker Taser (Nasdaq: TASR)"

    Non-lethal?

    Their most recent Training Package (dated 1 May 2010) admits that the "avoid the chest" Targeting Guidelines (issued late 2009), that's the advice that Taser Internation swore on a stack of Bibles was simply to "avoid controversy" - ...well they now admit that it's also to avoid the risk of deadly ventricle fibrillation.

    All the critics were correct. And Taser International's previous claims were false.

    Their liability is almost unimaginable.

  • Report this Comment On February 03, 2011, at 4:30 AM, HansPlug wrote:

    You are naive and have not listened to him, his supporters nor taken into consideration his mind set shaped by the cesspool he came from..

    All good Dictators preach the mantra "Power to the People". Give me your guns you have no need for them comrade, I will take care of you. Then when the power of the people has been removed the government kills those that disagree. Hitler, Stalin, Mao.

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