Industry Hanging Onto A Single Category
For the past few weeks, it may be that we've given a false impression as to how well the firearms industry is really doing. The net of all the numbers is that if you're a company with a strong line of high-capacity pistols and AR-style rifles, you're doing land office business. If you're heavily dependent on hunting, you are hurting.
Some companies, unfortunately, are seeing those languishing hunting sales carve -deeply- into their bottom lines. Take, for instance, Smith & Wesson (NASDAQ:SWHC). The company's Military & Police (M&P) line of AR-style rifles and polymer pistols are facing significant back orders due to the incessant consumer demand for high-capacity pistols and military-style rifles that will likely face a resurrected "Assault Weapons Ban" in 2009.
Despite that solid performance, however, Smith simply couldn't overcome the impact that hunting-centric subsidiary Thompson/Center Arms has had on the overall corporate balance sheet. When Smith & Wesson purchased Thompson/Center Arms in 2007, it looked like a solid acquisition. As a category-leader in hunting that also had a barrel-making facility, it seemed a great fit into the S&W portfolio
Today, smart might better be applied to the stinging negative impact T/C is having on Smith & Wesson's stock price. On Monday, Smith announced the previous quarter turned from a profit to a loss after a write-down taken due to the hunting rifle business. That write-down resulted in a loss of $76.2 million- roughly $1.62 per share in the period ended October 31. Without that "impairment charge" S&W would have shown a profit of around a penny per share.
As a public company, that change brought the wrath of investors and analysts. If you're a public company, you dare not disappoint the analysts. Should that happen, they take their pound of flesh out of your stock price. And Smith & Wesson stock has been pounded, losing slightly more than thirteen percent of its opening stock price yesterday, closing at $2.32.
Despite a forty percent rise in pistol sales over last year and a demand for their M&P and Sigma line of products, there was just too-much baggage from the moribund sales of Thompson/Center products. Hunting lines lost forty-one percent, with a miserable $11.5 million in sales.
They're not unique in having the bottom drop out of their hunting product, but as a public company, they are taking their lumps pretty publicly.
Meanwhile, industry sources tell me that the glut of firearms that aren't potentially threatened by any sort of high-capacity ban are sitting idly on store shelves. Not a good sign as we move into the final week of sales before Christmas.
Another cloud lurks in an already gloomy sky. It might be said that cloud isn't black, but it's certainly lead-gray. Despite strong resistance from the industry, the assault on lead in ammunition continues.
Granted, the results from testing on wild game containing lead fragments have done anything but prove conclusively that the longstanding ingredient of ammunition is negatively effecting the health of wild game consumers, but the facts have very little to do with the argument. Anti-gun groups are quietly meeting with public health advocacy groups in Washington this week, and we're hearing they are encouraging a "combination of interests" in order to push to have lead listed as a top priority in public health issues.
If that happens, there is very little any of us can do to fight that argument. With a zero-tolerance policy, health officials are going to pay precious little attention to the fact that the evidence is, at best, thin against lead ammunition.
Some ammo makers are already making it known that they are creating ammo lines that are lead-free. Others, reliable industry sources tell us, will have announcements at SHOT Show that will make it obvious to even the most stubborn holdouts that lead is on the way out in ammunition.
Not things that contribute to a Merry Christmas. Unfortunately, the opposition to firearms have apparently bifurcated their attacks on the industry, looking to ban classes of weapons and magnitudes of ammunition.
We're listening, and we'll keep you posted.
- Jim Shepherd
