Update: Smith & Wesson Beats On Q2 Earnings

| About: American Outdoor (AOBC)
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Summary

Smith & Wesson has just reported its Q2 2015 financial results.

The company beat on both revenue and earnings, but lowered its full-year earnings forecast.

The results were basically what I was expected, and I remain long-term bullish.

Smith and Wesson (SWHC), a leader in firearm manufacturing and designed, has reported Q2 2015 financial results. Here are the highlights:

  • The company reported net sales of $108.4 million, a decrease of 22.1% from last year, which was expected due to lower consumer demand and excess inventory at distributor and retail locations.
  • Gross profit margins were 32.1%, compared with 41.6% last year, as a result of lower sales volumes.
  • Income from continuing operations was $5.1 million, or $.09 per diluted share, which beat analysts' estimates by $.02.
  • The strong consumer preference for Smith & Wesson's products helped lower the company's inventory in its distribution channel by more than 18% in the second quarter, according to CEO James Debney. However, the company also expects this excess inventory of other manufacturers' production to continue to negatively impact it next quarter.
  • For the third quarter of fiscal 2015, Smith & Wesson expects net sales between $113 million and $118 million, and earnings per share between $.09 and $.11. However, if its Battenfield Technologies acquisition is finalized in December as planned, the company said its third-quarter earnings per share would decrease by $.05, as it would have to pay expenses related to the transaction.
  • For the full-year 2015, excluding the impact of the Battenfield acquisition, the company expects net sales between $504 million and $508 million, and earnings per diluted share between $.66 and $.70. This is lower than what the previous estimate of $530-$540 million and $.89-$.94.

Previously, I argued that investors should take a shot with Smith & Wesson, as the stock presents a compelling value and as gun sales normalize following the increased demand in 2013 after the Sandy Hook shooting.

The results were basically what I was expecting, but the lowered guidance is a bit disappointing, as the company has now forecasted for earnings per share over $.20 less than previous estimates. Still, with a share price of $9.20 and earnings per share of $.70, the stock carries a P/E of 13.1 which is cheap. And I still like the company's acquisition of Battenfield Technologies, which should add $14 million in annual EBITDA per year, or $.05 earnings per share. The polymer supplier acquisition in May of 2014 should also increase annual earnings per share by $.04-$.05, and increase sales by $7-$9 million, according to a previous company release.

For these reasons, I remain bullish on Smith & Wesson in the long term, and I'll look to add shares on any potential dips.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.