Smith & Wesson Holding Corporation SWHC is scheduled to report third-quarter fiscal 2015 results after the market closes on Mar 3, 2015. The gun maker has a decent earnings history. It has beaten estimates in the last four quarters, delivering an average positive surprise of 15.82%. Let’s see how things are shaping up for this quarter.
Factors to Consider
Smith & Wesson acquired Missouri-based Battenfeld Technologies, Inc., a leading provider of hunting and shooting accessories, in the quarter. It is expected to gain considerable traction from the Battenfeld acquisition, particularly in the firearm accessories market and the hunting vertical as well. Battenfeld boasts of a solid distribution network and is renowned for producing high-quality products. Smith & Wesson will likely witness a boost in its sales as it leverages Battenfeld’s potential.
The company raised the low end of its earnings guidance range for the third quarter of fiscal 2015 in Jan 2015. The company also upped its revenue guidance for the quarter to the range of $124–$126 million from the previous forecast of $113–$118 million.
It also increased its earnings guidance for fiscal 2015 to the range of 68–72 cents from the previous guidance of 66–70 cents. It also raised its revenue expectations to the range of $526–$530 million from $504–$508 million earlier.
Though one cannot draw a one-to-one co-relation, the raised guidance finds support from the FBI's National Instant Criminal Background Check System report of an 8.4% year-over-year increase in activity in January. This marked the second-highest January on record for the 16-year-old system and the fourth consecutive monthly increase of year-to-year growth in the FBI's numbers since Sep 2013.
We however note that Smith & Wesson has been posting declining sales for the past few quarters. This is so because the company has witnessed a significant fall in its sales of long guns, including modern sporting rifles.
Firearm companies like Sturm, Ruger & Company RGR and Smith & Wesson have been hit by low demand for weapons, as the earlier rush to possess firearms, triggered by the fear of tighter regulations, ebbed to a large extent. This has been reflected in soft sales of the company in fiscal 2014. The company’s estimated sales to independent distributors and sell-through from independent distributors to retail is likely to decrease.
Earnings Whispers?
Our proven model does not conclusively show that Smith & Wesson will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate of 10 cents and the Zacks Consensus Estimate of 11 cents, is -9.09% for Smith & Wesson.
Zacks Rank: Smith & Wesson has a Zacks Rank #2 which increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings beat at the company.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Releases
The leading publicly traded U.S. firearms maker, Sturm, Ruger & Company, Inc.’s fourth-quarter 2014 earnings of 53 cents per share comfortably surpassed the Zacks Consensus Estimate of 42 cents by 26.2%. The reported figure was however down 60.2% on lower sales from $1.33 per share earned in the year-ago quarter.
Louisiana-based Pool Corp. POOL reported a fourth-quarter loss of 5 cents per share, narrower than the Zacks Consensus Estimate of a loss of 7 cents.
Malibu Boats, Inc. MBUU reported second-quarter fiscal 2015 (ending Dec 31, 2014) earnings of 24 cents per share, barely missing the Zacks Consensus Estimate of 25 cents.
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