Smith & Wesson Earnings Soar, but Guidance Is Poor

Springfield, Mass.-based Smith & Wesson (NASDAQ: SWHC  ) shares gained 3.5% in Thursday trading, as investors anticipated strong results in the company's afternoon fiscal Q1 2014 earnings report. Then investors actually saw the results -- and S&W gave up all the day's gains, and more.

Smith & Wesson earnings per diluted share grew to $0.40, up 48% in comparison to last year's fiscal Q1 on a 26% increase in revenues ($171 million). These results exceeded expectations on both counts. Much of the gains came from a 490-basis point improvement in gross profit margins, which hit 42.6% in Q1. Boosting the company's profitability even further, operating expenses shrank by about 20 basis points, falling to 14.5%, giving rise to improved operating profits and net profits alike.

Free cash flow for the quarter, defined as operating cash flow minus capital expenditures, was $7 million, more than twice the $3 million in cash profits generated one year ago.

CEO James Debney pointed out that the company made: "Improvements across all of our key metrics, including a meaningful increase in year-over-year sales and significant expansion of our gross margins. Ongoing increases in our manufacturing capacity, combined with strong consumer demand for firearms, resulted in increased market share and higher sales ..."

What appears to have spooked investors was guidance for the current quarter. Smith & Wesson is expecting to earn between $0.20 and $0.22 in fiscal Q2 2014, on revenues of at most $140 million. Wall Street's prediction: $0.29 on $143 million in sales. Thus, S&W is predicting "misses" on both profits and sales.

Shares were down 4.6% in after-hours trading.


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  • Report this Comment On September 05, 2013, at 7:49 PM, Trackey wrote:

    Why is S&W predicting misses on sales and profits? Is it because of fewer production days and loss of Walter sales and/or other reasons? Would be nice to finish an analysis with a reasonably conclusion instead of letting the reader wonder why ?

  • Report this Comment On September 05, 2013, at 8:42 PM, BARNSTORMER600 wrote:

    Rich - who put you up to this mess of an assessment?

    Analysts actually missed by far more than you stated in the article - so you should take a little time and re-read the earnings report. I have to question why Rich is suddenly giving credence to analyst numbers. The analysts have gotten Smith AND Ruger wrong for the past three years, and now the analysts are in a position to make a call on the next quarter. In all fairness, RICH, you should have listed each analyst and their revenue and income marks. You'd find they are all over the board.

    You should also review the FBI NICS checks and recall that Smith is taking share from Beretta, Springfield, and Glock. You should also recall that August of 2012 had a spike in NICs due to the COLORADO incident. Looking at the July historical NICS, the trend is holding up quite nicely - no sign of deterioration at all.

    So really now, the only deterioration I see here is in RICH's journalistic ethics. Back to the drawring board, RICH, you don't have the moxy to last in financial journalism. Perhaps if you got back into lawyering. ....

  • Report this Comment On September 05, 2013, at 8:49 PM, BARNSTORMER600 wrote:

    RICH, RICH RICH:

    Please list the analysts, their revenue and profit estimates, and the date each was made public.

    These analyst estimates you speak of, how could they go from consistently bearish to bullish if the declining demand meme is in place. Was it to intentionally overstate the estiamtes??

    I will also add that your timing is impeccable. You must have gotten a nice paycheck from some market maker or fund for getting this hit piece out in the NIC of time

  • Report this Comment On September 06, 2013, at 12:14 AM, sailrmac wrote:

    Many underestimate the opportunity cost of implementing SAP, including SWHC.

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