Smith & Wesson (SWHC) Beats on Q4 Earnings, Stock Rises

Smith & Wesson Holding Corp. SWHC reported non-GAAP fourth-quarter fiscal 2016 (ending Apr 30, 2016) earnings of 66 cents per share, beating the Zacks Consensus Estimate of 54 cents by an impressive 22.2%. Earnings escalated 46.7% from the year-ago figure of 45 cents per share on the back of higher sales.

Fiscal year earnings came in at $1.83 per share, up 79.4% from $1.02 a year ago.

Investors reacted positively to the company’s earnings beat with shares of the gun maker climbing 7.59% in late trading yesterday following the release. Shares of its rival, Sturm Ruger & Co. RGR had also climbed 4.24% after its latest earnings release.

SMITH & WESSON Price, Consensus and EPS Surprise

SMITH & WESSON Price, Consensus and EPS Surprise | SMITH & WESSON Quote

Total Revenue

Total revenue in the quarter was $221.1 million, beating the Zacks Consensus Estimate of $215.5 million by 2.6%. The top line increased 22.2% year over year driven by 22.4% revenue growth in the Firearm division to $203.7 million (92.1% of total revenue) and 19.8% growth in the Accessories division to $17.5 million (7.9% of total revenue).

Fiscal year revenue was $722.9 million, up 31% year over year. Firearms division sales increased 23.8% while Accessories unit’s revenues were boosted by $20.6 million.

Quarterly Operating Highlights

Gross profit in the quarter increased 37.2% year over year to $92.1 million. This corresponds to a gross margin of 41.6%, up 450 basis points (bps) year over year.

Operating expenses were $35.2 million (15.9% of revenues), up 18.1% from $29.8 million in the fourth quarter of fiscal 2015.

Operating income in the quarter was $56.9 million, up 52.5% year over year.

Financial Position

As of Apr 30, 2016, Smith & Wesson had cash and cash equivalents of $191.3 million, compared with $42.2 million as of Apr 30, 2015. The company ended the fourth quarter with no borrowings on its $175.0 million revolving line of credit.

Operating cash flow was $168.6 million in fiscal 2016, compared with $114.8 million a year ago. Free cash flow was $82.9 million in the fiscal fourth quarter compared with $80.7 million a year ago. This brought the free cash flow to $137.7 million in fiscal 2016, up substantially from $87.9 million a year ago.

Guidance

Smith & Wesson provided its fiscal first quarter as well as fiscal 2017 guidance.

For the fiscal first quarter, the company expects revenues of $190–$200 million. Non-GAAP earnings are expected in the range of 49–53 cents per share for the ongoing quarter.

For fiscal 2017, revenues are expected in the range of $740–$760 million, while non-GAAP earnings are anticipated in the range of $1.83–$1.93 per share.

Zacks Rank

Currently, Smith & Wesson has a Zacks Rank #4 (Sell). Smith & Wesson faces stiff competition from other firearm companies like Sturm, Ruger & Company and Vista Outdoor VSTO. Outdoor sporting goods retailers Sportsman's Warehouse Holdings, Inc. SPWH and Cabela’s Inc. CAB also have major exposure to firearm sales.

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