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.
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