The battlefield is switching from foreign shores to the streets of our own cities, as the decision by ammo and munitions maker Alliant Techsystems (NYSE: ATK), aka ATK, to purchase firearms accessories maker Bushnell makes abundantly clear. Coming as it does months after it acquired shotgun and rifle maker Savage Arms, it's clear ATK has its sights set on the civilian firearms enthusiast and less on defense contracts.
You can't minimize the importance of what the near-$1 billion acquisition means, since the sporting group division of ATK will now amount to about 45% of its total revenues, up from 33% at the end of last quarter and 25% in the year-ago period. It won't be long before it accounts for more than half of all its sales.
And why not? Rampant demand for guns and ammo here at home continues running hot without any sign of abating. It's causing Sturm, Ruger (RGR +1.06%), one the leading firearms manufacturers and the only full-line manufacturer of American-made firearms, to undertake its first expansion in 25 years. After running out of product to ship to distributors at the end of last year despite its facilities running full-bore, the gunslinger says it simply needs more capacity to meet demand. Last-quarter profits soared 79% on a 50% run-up in revenues even as NCIC background checks rose 16% from the year-ago period.
Things aren't much different at the other publicly traded gunsmith, Smith & Wesson Holdings (SWHC +0.97%), where sales shot higher by more than 25%, generating a 49% increase in net income.
Although there remains a lot of opposition to the private ownership of guns, it's a pitched firefight in which states imposing stricter gun control laws are seeing manufacturers vote with their feet and moving to friendlier climes. And while Sturm, Ruger isn't one of them -- it chose to stay put in Connecticut despite tough new laws following the Sandy Hook school shooting -- the fact that it's expanding in the gun-friendly state of North Carolina and not its home state is telling.
While ATK's defense business isn't going anywhere and it continues to win contracts, it realizes the money to be made is in civilian guns and ammo sales. Defense group sales fell 13% last quarter, the only division to experience a decline, which caused total revenues to dip by 0.3%. Considering they currently account for 44% of all sales, it's understandable that the munitions maker wants to minimize their impact.
My Foolish colleague Rich Smith thinks ATK has overpaid for Bushnell, and won't begin to see a return on its investment for at least two years. While you can't pay for growth at any price, I'm not so sure this still isn't a good deal. Particularly as President Obama continues an end run around Congress by issuing executive orders to effect gun control, demand will stay hot and keep manufacturers busy for a long time to come.
With defense spending pinched and slower orders hurting performance, it makes sense that ATK wants a larger piece of what is a fast-growing pie. Of course, how long the pendulum swings in this direction remains to be seen, but its barreling along like a rifle shot at the moment. Considering the shortages of ammunition created by fears of gun control and massive government purchases, adding a new component to its domestic line means ATK still aims to win the war.
