Smith & Wesson (NASDAQ:SWHC) will release its quarterly report on Tuesday, and investors have gotten extremely nervous over the past months about increasingly restrictive regulation and concerns about whether growth in firearm sales have topped out. Even as Smith & Wesson and Sturm, Ruger (NYSE:RGR) try to navigate the increasingly complex web of different state laws on guns, the two companies are joining smaller manufacturers in considering major operational changes to take advantage of friendlier jurisdictions.

Smith & Wesson and other gunmakers have overcome tough challenges in recent years, dealing with tragic situations involving guns while fighting to keep their businesses moving forward. After years of strong sales from buyers scared about tighter federal gun control laws, Smith & Wesson has to find new ways to promote growth while not running afoul of new legislative efforts at the state level in various parts of the country. Let's take an early look at what's been happening with Smith & Wesson over the past quarter and what we're likely to see in its report.

Smith & Wesson M&P45 Handgun. Image: Smith & Wesson.

Stats on Smith & Wesson

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$142.70 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can Smith & Wesson earnings climb higher?
In recent months, analysts have raised their views on Smith & Wesson earnings, boosting January-quarter estimates by $0.02 per share and lifting fiscal 2014 and 2015 projections by 2% to 4%. Yet the stock has fallen 2% since late November, and it has given up even more impressive gains since the early part of 2014.

Smith & Wesson brought some positive momentum forward from its October quarter, with adjusted revenue growing 9% based on a better than 27% growth rate in handgun sales. Earnings per share rose by a sixth, defying expectations for a slight drop compared to the year-earlier quarter. Yet the news wasn't all good, as CEO James Debney noted that background checks fell by 14% in November, and the company expects those year-over-year declines to continue until April or May. That seasonal trend is consistent with what ammunition-maker Olin (NYSE:OLN) has noted, with Olin CEO Joseph Rupp's prediction for slowing sales following 2012's Election Day largely coming true.

One big challenge Smith & Wesson has faced, though, is tougher gun laws. In California, both Smith & Wesson and Sturm Ruger have said that they won't sell semiautomatic guns within the state because of a new law requiring microstamping of gun casings after firing. New York Governor Andrew Cuomo has criticized some gun owners as being extremists, reflecting the increased hostility toward guns in the wake of tragedies like the Sandy Hook shootings.

Yet the big trend among gun manufacturers has been to move to more accommodative states in light of strong regulation. Privately held Magpul Industries left Colorado after the state imposed maximum magazine sizes, and both Remington Arms and Beretta have indicated interest in looking elsewhere beyond their home states for possible future expansion. Sturm Ruger said last year that it would expand in North Carolina rather than Connecticut, and while Smith & Wesson hasn't taken any similar action to date, it's possible that future expansion plans could come at the expense of its home state of Massachusetts.

In the Smith & Wesson earnings report, watch to see how the company deals with the latest round of anti-gun sentiment. As midterm election races start to heat up, it's possible that a two-year cyclical upturn could help boost sales once again for Smith & Wesson and its peers.

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