Market Overview

Smith & Wesson Falls Despite Strong Q4 Results; Sturm, Ruger Also Lower (RGR, SWHC)

Leading gun manufacturer Smith & Wesson (NASDAQ: SWHC) released very strong fiscal fourth-quarter results on Tuesday after the closing bell.

The company also provided robust Q1 and full-year guidance. Nevertheless, the stock was trading down better than two percent on Wednesday as investors look to take profits in the name, possibly on expectations that recent strong gun sales will eventually taper off as the gun control debate dies down. Potential legislative concerns also remain an overhang for the stock.

Smith & Wesson reported both earnings and revenue that came in ahead of consensus estimates and also provided Q1 and full-year guidance which was well ahead of expectations. The results were bolstered by exploding gun sales in the wake of legislative pressure to crack down on lax gun laws in the wake of the Newtown shooting and other mass shootings.

Looking ahead to the fiscal first-quarter, the company guided for adjusted EPS of $0.34 to $0.37 on sales of $162 million to $167 million. This compares to current consensus EPS estimates of $0.30 on sales of $141.15 million.

The gun maker also provided guidance for the full-year which was substantially above current consensus. Smith & Wesson said that it expects adjusted EPS of $1.30 to $1.35 on sales of $605 million to $615 million. This compares to current full-year estimates calling for EPS of $1.13 on sales of $590.36 million.

"We are pleased with our results, which include record fourth quarter and annual net sales and profits and a substantial expansion of our gross margins," said James Debney, Smith & Wesson's President and CEO. "Our successful performance was driven by solid marketing, innovative new products, disciplined manufacturing execution, and strict financial management. Significant increases in our manufacturing capacity, combined with continued robust consumer demand for firearms, resulted in higher sales of our most popular M&P® products."

The sell-off in Smith & Wesson despite strong Q4 results and upbeat guidance has also negatively impacted sentiment in shares of Sturm, Ruger (NYSE: RGR). That stock was down around 3 percent in afternoon trading on Wednesday. Shares actually opened the session higher, but came under strong selling pressure within minutes of the opening bell.

Sturm, Ruger has been underperforming the market in 2013 despite brisk gun sales. Year-to-date the stock is up a little better than five percent. Smith & Wesson, on the other hand, has been outperforming so far this year, with the stock rising around 16 percent.

For the fiscal fourth-quarter, Smith & Wesson reported net income of $25 million or $0.38 per share, compared to $12.5 million or $0.19 per share, in last year's corresponding period.

Income from continuing operations was $28.6 million or $0.44 per share, versus $17.8 million or $0.27 per share, in last year's fourth-quarter. This was in-line with Wall Street analysts' consensus EPS estimates of $0.44. The results, however, included a $0.03 expense charge associated with a product recall.

Revenue in the quarter was up 38 percent to $179 million from $130 million in the year ago period. This easily topped analysts' consensus revenue estimates of $170.72 million.

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