Smith & Wesson Holding Corp. Earnings: Can the Stock Keep Soaring?

On Tuesday, Smith & Wesson Holding (NASDAQ: SWHC  ) will release its quarterly report, and shareholders have been pleased to see continued share-price gains from the gunmaker. Yet along with rival Sturm, Ruger (NYSE: RGR  ) , Smith & Wesson is in danger of seeing earnings top out, and many investors wonder whether the good times for the gun industry will last or whether the recent move from Alliant Techsystems (NYSE: ATK  ) to spin off its firearms and sporting segment marks a high-water mark for Smith & Wesson and other gun manufacturers.

Smith & Wesson has been the ultimate contrarian investing play, as many people expected that tougher gun regulation would hurt sales and bring Smith & Wesson, Sturm, Ruger, and other gunmakers to their knees. Yet in many ways, the opposite has been true, as the threat of tighter gun regulation has led to higher short-term sales. Still, even the gun companies themselves have warned that short-term effects could eventually give way to slower growth, and the question is whether that time has come or whether further growth opportunities still exist. 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.


Source: Smith & Wesson.

Stats on Smith & Wesson

Analyst EPS Estimate

$0.39

Change From Year-Ago EPS

(11.4%)

Revenue Estimate

$163.55 million

Change From Year-Ago Revenue

(8.5%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Smith & Wesson earnings start shrinking?
In recent months, analysts have boosted their views on Smith & Wesson earnings, raising April-quarter estimates by $0.02 per share and increasing their fiscal 2015 projections by about 4%. The stock has kept soaring, with gains of 37% since late February.

Most of Smith & Wesson's gains came early in the quarter, when the gunmaker announced its earnings for the January quarter. Sales jumped more than 7% from the year-ago quarter despite the loss of revenue from Smith & Wesson's arrangement with Walther Arms, and net income from continuing operations rose nearly 35% on a roughly 30% rise in handgun sales. Moreover, Smith & Wesson gave positive guidance for the April quarter, boosting estimates for the full fiscal year as well.

Source: Smith & Wesson.

What was particularly impressive about Smith & Wesson's results is that investors were so much more pleased with them than they were with what rival Sturm, Ruger posted. For its part, Sturm Ruger saw a 33% jump in earnings per share, but shareholders weren't satisfied with that performance and sold off the shares accordingly. Investors have clearly gotten spoiled from such high demand last year that Sturm Ruger wasn't able to keep up, but they nevertheless appear to be concerned about what might be the looming end of the current strength in gun sales, as background-check volume has plunged in recent quarters and sporting-goods retailers have seen weaker sales as well. That might also be part of the justification for Alliant Techsystems choosing to spin off its Savage Arms and other sporting-goods brands into a separate entity.

Still, Smith & Wesson appears to be holding up well. Earlier this month, one analyst firm upgraded the company's stock, arguing that Smith & Wesson's new handgun launches are faring well, especially in jurisdictions that allow concealed handguns. If Smith & Wesson can demonstrate its superiority over Sturm Ruger in the eyes of consumers, then it might be a long-term winner even if gun demand returns to more normal levels.

In the Smith & Wesson earnings report, watch to see what comments the company's management has about the future trends in gun sales. Given how long skeptics have been calling for weaker sales, it wouldn't be surprising if Smith & Wesson could forestall the long-awaited setback for at least one more quarter.

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Read/Post Comments (3) | Recommend This Article (1)

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 June 03, 2014, at 8:08 PM, jts4545 wrote:

    S&W makes better pistols than Ruger. The S&W M&P pistol line simply works better than Ruger SR pistols. In these uncertain times Of Obama's political, military, and security failures, compounded by unwise threats of gun control, buyers are going for guns that deliver top performance, not excuses. The Ruger SR line of pistols simply is not as good. Got operating problems that Ruger does not "see" fast enough. Not fixing them fast enough either. S&W "saw the problems" and made sure that M&P line did not have them. The better gun gets the sale more often, making S&W stock rise. Go down to your local gun store and handle them. You will spot the Ruger SR flaw very quickly. The S&W works with no problems. Ruger better "take the blinders off" and fix the SR problem or stock price will keep dropping. Acting like GM. "Too big to fail" thinking. Its Ruger SR series is failing compared to S&W M&P. Bringing Ruger stock price down. Time for Ruger to "wake up" and fix the problem. Or S&W will gain even more in stock price.

  • Report this Comment On June 05, 2014, at 9:43 AM, JohnJo wrote:

    I own 2 Smith & Wesson and 2 Ruger hand guns. I've owned nearly a hundred handguns over the years. Both companies put out good revolvers and pistols. They function beautifully. I've been shooting over 50 years and average more than 10,000 rounds a year. I know what I'm talking about.

  • Report this Comment On June 14, 2014, at 11:00 AM, earp357 wrote:

    As a Police Office since 1986 I have amassed and fired just about most makes and models available to the public and some not available to the general public. Ny first duty-issued firearm was a Smith & Wesson Model 10 4" Combat Masterpiece, followed by a Model 66. Then in 1990 came the big transition away from revolvers into Semi-Automatics mainly because of the 1986 FBI shooting report about capacity and time to reload. My FIrst semi-auto issued by the department was the Sig-Sauer P-226 (1st Gen). An exceptional handgun that I felt was all I would ever want or need. Then came some additions to our choices of carry which Included a transition to .45ACP which made me part with the P-226 9mm. Among the choices were Ruger P-90, Glock 21 and later the 30. I can honestly say to this day, Glock is my gun of choice, but I do own Rugers a SR40C, LCP, LC9, Mini14, Ruger GP-100 6" and recently purchased a Ruger GP-100 Match Champion which I healvily compared to the .357 offerings from S&W's Performance Center. Dollar for Dollar the Ruger won hands down. And honestly, the Internal Lock on the S&W turns me off. However, I am looking to acquire several M&P Pistols that I have come to like.

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