Smith & Wesson Holding Corp. SWHC reported non-GAAP first-quarter fiscal 2016 (ending Jul 31, 2015) earnings of 32 cents per share, beating the Zacks Consensus Estimate of 22 cents by an impressive 45.5%. Earnings advanced 23.1% from an adjusted profit of 26 cents per share a year ago due to higher sales. Investors reacted positively to the beat with shares of the gun maker rallying 6.17% in after-hour trading yesterday.
Total Revenues
Total revenue in the quarter was $147.8 million, beating the Zacks Consensus Estimate of $144 million by 2.6%. Revenues increased 12.1% year over year driven by 1.9% revenue growth in the Firearm division to $134.4 million (90.9% of total revenue) and 29.9% revenue growth in the company’s Accessories division amounting to $13.3 million.
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 19.9% year over year to $58.9 million. This corresponds to a gross margin of 39.8%, up 260 basis points (bps) year over year.
Operating expenses were $29.1 million, or 19.7% of revenues, up 23.9% from $23.4 million, or 17.8% of revenues in the first quarter of fiscal 2015.
Operating income in the quarter was $29.8 million, up 16.1% year over year. This reflects an operating margin of 20.2%, up 70 bps year over year.
Financial Position
As of Jul 31, 2015, Smith & Wesson had cash and cash equivalents of $55.4 million compared with $42.2 million as of Apr 30, 2015. Operating cash flow was $16.6 million in the quarter, up 54.2% from $10.8 million a year ago. The company ended the first 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 first-quarter sales growth.
For the fiscal second quarter, Smith & Wesson expects revenues in the range of $135–$140 million. Non-GAAP earnings from continuing operations are expected in the range of 19–21 cents per share for the upcoming quarter.
For fiscal 2016, revenues are now expected in the range of $610–$620 million, up from $605–$615 million expected earlier, while non-GAAP earnings are anticipated in the range of $1.14–$1.19 per share ($1.02–$1.07 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 publicly traded U.S. firearms maker, Sturm, Ruger & Company, Inc.’s RGR second-quarter 2015 earnings of 91 cents per share comfortably surpassed the Zacks Consensus Estimate of 84 cents by 8.3%. Earnings were however down 18.8% from $1.12 per share earned in the year-ago quarter due to lower sales.
Louisiana-based Pool Corp.’s POOL second-quarter 2015 earnings of $1.79 per share were in line with the Zacks Consensus Estimate.
Zacks Rank
Currently, Smith & Wesson has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Callaway Golf Co. ELY, carrying a Zacks Rank #2 (Buy).
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