Shares of Smith & Wesson Holding Corp. dropped Friday after the gun maker said dealers are cutting back on gun orders and posted an outlook for its fiscal second quarter that fell short of Wall Street forecasts.
THE SPARK: The company said Thursday that its fiscal first-quarter net income dropped by half from the same period last year. Its outlook for the current quarter, which ends in October, was also weaker than analysts had expected because of cautious orders from gun dealers.
Smith & Wesson expects to only break even in the August-October quarter, with revenue ranging between $97 million to $102 million. Analysts polled by Thomson Reuters had forecast earnings per share of 11 cents on revenue of $115.5 million.
THE BIG PICTURE: A year ago, firearms sales jumped to a quarterly company record as gun buyers stocked up because of worries about potential new gun control regulations. The company said its dealers and distributors are now ordering more cautiously and keeping inventories tight because of the uncertain economy.
THE ANALYSIS: While Smith & Wesson posted an outlook for the current quarter below analyst expectations, it maintained its revenue forecast for the year. Analysts remain upbeat about longterm prospects and cited the popularity of new products, "Bodyguard" pistols and revolvers which are designed for people with a permit to carry a concealed handgun. The new guns, introduced in July, are sold out through December, helping offset the steep slump in sales of other firearms.
SHARE ACTION: Shares dropped to a 52-week low of $3.53 in early trading. At midday, the stock remained down 34 cents, or 8.6 percent, at $3.62.