Sturm, Ruger (NYSE:RGR) has a warning for gun owners: In case you're not aware, there's more at stake in this year's presidential election than just who occupies the White House. According to some advocates, the very bedrock of gun rights will be threatened as the winner of the contest will also appoint someone to fill the vacancy on the Supreme Court left by Justice Antonin Scalia, an ardent supporter of the Second Amendment.
The firearms manufacturer is putting its money where its mouth is: CEO Mike Fifer says Ruger is pledging to donate to the National Rifle Association's Institute for Legislative Action $2 from every gun sale it makes between now and election day on Nov. 8, in addition to making a matching contribution to the gun rights group up to a total of $5 million.
Fifer didn't say he was supporting or opposing one presidential candidate or another. But in responding to an analyst's question about Democratic nominee Hillary Clinton during the company's earnings call earlier this month, he pointed out she clearly opposes the Supreme Court's 2008 District of Columbia v. Heller decision, a ruling penned by the late Scalia that established the absolute constitutional right of individuals to purchase and own firearms. He continued, saying she has actively campaigned against "the lawful commerce in arms", a position that's "unprecedented" and could result in a major shake-up for both the industry and gun owners.
The importance of the Heller decision
The Heller decision was a landmark ruling, because it embraced the idea that the right to own a firearm wasn't merely for hunting but as a means of defense, be it for personal protection or from a tyrannical government. It didn't apply only to the military or police but to every U.S. citizen.
The District of Columbia originated the ruling as the city had made it impossible to own a handgun. The District passed a law that not only made it a crime to carry an unregistered firearm, but it prohibited even registering one. Any lawfully owned firearms kept in the house such as a rifle also had to be made nonfunctional.
Heller was a D.C. special police officer who carried a gun while on duty but was denied the ability to register a handgun to keep at his home. He filed the lawsuit against the District on Second Amendment grounds.
Although the district court dismissed the lawsuit, it was reversed by the D.C. circuit court on appeal, and the Supreme Court agreed to hear the case with Scalia writing the majority opinion:
It is enough to note, as we have observed, that the American people have considered the handgun to be the quintessential self-defense weapon. There are many reasons that a citizen may prefer a handgun for home defense: [...] Whatever the reason, handguns are the most popular weapon chosen by Americans for self-defense in the home, and a complete prohibition of their use is invalid.
Two years later, the Supreme Court further affirmed that the Second Amendment also applied to cities and states when it overturned Chicago's restrictive handgun ban.
What Clinton thinks about the Second Amendment
It's important to note Hillary Clinton has never called for repealing the Second Amendment, though critics might argue her policy prescriptions would effectively achieve the same end. However, her campaign website does outline several broad initiatives for what her presidency would push:
- Expanded background checks
- End so-called loopholes in the system
- Hold the firearms industry legally responsible for crimes committed with guns
- Deny gun ownership rights to "domestic abusers", violent criminals, and the mentally ill
While there are arguments both for and against such initiatives, pair them with some of Clinton's public statements questioning gun ownership as a constitutional right or supporting Australian-style gun confiscation at a national level, and it is certainly understandable why both gun owners and manufacturers are concerned.
Gun companies push back
Fifer wasted no time on the conference call before jumping right into the politics. Rather than discussing the company's results, the CEO made it known that Ruger was making financial contributions to the NRA, declaring it a "call-to-action" for customers and others who support the Second Amendment.
Smith & Wesson Holding (NASDAQ:AOBC) has not been so bold in its public pronouncements, but it is similarly contributing financially to the legislative and regulatory battle. The company just announced it was pushing $500,000 to the National Shooting Sports Foundation's voter registration and education drive, #GUNVOTE, following Massachusetts' ban on modern sporting rifles, firearms that are incorrectly identified as "military-style assault weapons" and are functionally no different from regular rifles besides aesthetics.
A targeted response
So what might a Hillary Clinton presidency mean for gun manufacturers? Despite the rhetoric, it could be a boon to them, much as President Obama's two terms have been. From 2008 to 2015, Smith & Wesson firearms sales have tripled, growing at a compounded 14.5% rate annually, while Ruger's sales have almost quadrupled for an 18% annual growth rate.
Their profits did even better. Net income rose six-fold for Ruger to $64 million, versus Smith & Wesson, which saw its bottom line nearly triple to $35.6 million.
Those impressive results only reflect the demand in the marketplace for firearms. The annual number of criminal background checks conducted by the FBI for people wanting to buy a firearm have more than doubled since 2007, growing from about 11 million in 2007 to more than 23 million last year. There's a reason Obama has been dubbed "the greatest gun salesman in history".
Adopting such a public stance as Sturm, Ruger has taken obviously raises the stakes for the gun makers should Hillary Clinton win the election, though the stakes were already high. But then again, President Obama similarly pushed for gun control, and his tenure actually saw very little federal legislative action. Regardless, Sturm, Ruger still has good reason to worry about how a Clinton presidency would challenge firearms sales and gun ownership.
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.