Slow Sales May Force Gunmakers to Follow Beretta's Lead and Flee

Industry slowdown makes manufacturing location decisions all the more crucial.

Jul 27, 2014 at 10:18AM

Fucili

Source: Beretta.

The calm following the gun control legislation storm has led to a slowdown in firearms sales, and that's going to be central to gun makers determining where they site their manufacturing facilities. Beretta just announced it was taking all of its manufacturing jobs out of Maryland by 2015 because of that state's tough new gun laws, and both Sturm, Ruger (NYSE:RGR) and Smith & Wesson Holding (NASDAQ:SWHC) may find it more expedient to follow suit as fewer gun sales pressure them to protect the jobs they currently provide.

Maryland was one of the states that rushed to enact tough new gun control legislation in the wake of the tragic Sandy Hook school shootings, but is finding now that its knee-jerk response will have consequences. Beretta said that instead of just its new machinery and production of new firearms moving to gun-friendly Tennessee, as it previously declared, all Maryland manufacturing jobs will flee south. Taking into consideration Maryland's attempt to ban gun manufacturing altogether -- and the possibility such measures could be resurrected in the future -- it was prudent to protect its jobs and ensure that sales to customers like the U.S. military weren't interrupted. The military's M9 9mm pistol, for example, is made at its Maryland plant.

While the company's statement said it has no plans to relocate its office, administrative, and executive support functions from their current location in Maryland, does anyone really believe they won't soon follow the manufacturing jobs south?

Main

Source: Beretta.

Firearms sales are slowing now that the threat of new gun control measures has been largely pushed aside. Both Ruger and Smith & Wesson saw slack demand hit operating earnings and the stocks of both gun makers have tumbled from their 52-week highs. Ruger is down 30%; Smith & Wesson, 20%. 

As business ebbs away, they'll need to ensure their jobs are well protected from grasping legislatures. Finding more hospitable climes for their facilities will be essential for uninterrupted manufacture.

Screen Shot

Source: Sturm, Ruger and Smith & Wesson SEC filings.

Ruger made its first major expansion in over two decades last year, and it didn't happen in its home state of Connecticut, but rather in North Carolina. Perhaps as Beretta will also ultimately determine, even having a corporate headquarters in an anti-gun state is not worth the while or the revenues it brings into the state.

Beretta and Ruger, of course, are not the only gun makers pulling up stakes and leaving hostile states. Across the country, firearms manufacturers are voting with their feet, with PTR Industries and Stag Arms leaving behind Connecticut and Kahr Firearms and Remington Arms escaping from New York. Magpul Industries abandoned Colorado even though its voters recalled two state senators who had voted in favor of more restrictive gun laws.

Yet without fear being one of the primary motivators for gun sales, sporting goods stores like Dick's Sporting Goods and Cabela's are also reporting steep declines in sales. The FBI, as well, reports the number of background checks it's done for individuals wanting to buy firearms has dropped from the previous breakneck pace.

Screen Shot

Source: FBI.

But it won't take much to spur sales again. President Barack Obama just unilaterally banned the sale of Russian-made AK-47s, ostensibly to punish Kalashnikov Concern for its country's support of Ukrainian rebels who allegedly shot down a civilian Malaysian passenger aircraft last week. Although there are a lot of caveats to the ban -- basically so long as Kalashnikov isn't party to the sale, individuals can still buy and sell them -- the fact that the sporting rifle has been high on the list of targets of gun control activists for a long time could send gun owners and enthusiasts scrambling to stock up now.

Beretta's race for the border won't occur until mid-2015 so as not to disrupt shipments to customers, but it also won't be the last gun maker to beat feet. With good manufacturing jobs at a premium as unemployment remains persistently high, even Sturm, Ruger and Smith & Wesson will be forced to consider a state's attitude toward their business and conclude that domiciling in those that appreciate the jobs and revenue they provide is best for their business and their investors.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers