Smith & Wesson Holding Corp. SWHC reported non-GAAP second-quarter fiscal 2016 (ending Oct 31, 2015) earnings of 25 cents per share, beating the Zacks Consensus Estimate of 20 cents by an impressive 25%. Earnings escalated 150% from the year-ago figure of 10 cents per share on the back of higher sales.
Investors, however, reacted negatively to the beat with shares of the gun maker dropping 1.36% in after-hour trading yesterday.
Total Revenue
Total revenue in the quarter was $143.2 million, beating the Zacks Consensus Estimate of $137 million by 4.5%. The top line increased 32.1% year over year driven by 15.2% revenue growth in the Firearm division to $124.9 million (87.2% of total revenue) and 24.6% revenue growth in the company’s Accessories division amounting to $18.4 million (12.8% of total revenue).
The Accessories division was created after the acquisition of Missouri-based Battenfeld Technologies, Inc., a leading provider of hunting and shooting accessories on Dec 11, 2014.
Operating Highlights
Gross profit in the quarter increased 61.4% year over year to $56.2 million. This corresponds to gross margin of 39.2%, up 710 basis points (bps) year over year.
Operating expenses were $34.4 million, or 24% of revenues, up 43.1% from $24.1 million in the second quarter of fiscal 2015.
Operating income in the quarter was $21.8 million, up 102.2% year over year.
Financial Position
As of Oct 31, 2015, Smith & Wesson had cash and cash equivalents of $54.1 million, compared with $42.2 million as of Apr 30, 2015. Operating cash flow was $22.8 million in the first half of fiscal 2016, compared with cash outflow of $3.4 million a year ago. The company ended the second quarter with no borrowings on its $175.0 million revolving line of credit.
Guidance
Smith & Wesson Holding raised its fiscal 2016 earnings guidance on solid second-quarter sales growth.
For fiscal third quarter, the company expects revenues in the range of $150–$155 million. Non-GAAP earnings from continuing operations are expected in the range of 27–29 cents per share for the upcoming quarter.
For fiscal 2016, revenues are now expected in the range of $625–$635 million, up from $610–$620 million expected earlier, while non-GAAP earnings are anticipated in the range of $1.26–$1.31 per share ($1.14–$1.19 per share earlier).
Our Take
Smith & Wesson is expected to gain considerable traction from the Battenfeld acquisition, particularly in the firearm accessories market and the hunting vertical. Battenfeld boasts a solid distribution network and is known for its high-quality products.
Peer Releases
The leading U.S. firearms maker, Sturm, Ruger & Company, Inc.’s RGR third-quarter 2015 earnings of 62 cents per share missed the Zacks Consensus Estimate of 70 cents by 11.4%. Earnings however surged 82.4% from 34 cents per share earned in the year-ago quarter on higher sales.
Louisiana-based Pool Corp.’s POOL third-quarter 2015 earnings of 90 cents per share beat the Zacks Consensus Estimate of 86 cents by 4.7%. Further, the figure increased 15% from the prior-year quarter earnings of 78 cents. The increase was due to higher sales and improved gross profits, offset by an unfavorable currency impact of 1 cent.
Zacks Rank
Currently, Smith & Wesson has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Callaway Golf Co. ELY, sporting a Zacks Rank #1 (Strong Buy).
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