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Bang / Guns Title: Smith & Wesson's Business Strategy Smith & Wesson's Business Strategy By Zaw Thiha Tun | July 15, 2015 AAA | Founded in 1852, Smith & Wesson Holding Corp. (SWHC) is an American arms manufacturer whose firearms have seen action in every major world conflict since its inception. Smith & Wesson, the Freedom Group, and Sturm, Ruger & Co, Inc. (RGR) are the Big Three gun producers in the US, responsible for a combined 40 percent of the total market share, according to the Small Arms Survey. Business The $838 million market cap company, Smith & Wesson employs 1,758 people, and according to their first quarter 2015 earnings report, the company derives its revenues from selling handguns, long guns, and firearms-related accessories to a wide variety of customers, ranging from civilians seeking home protection to military agencies around the world. S&W is also a leading manufacturer of handcuffs in the United States, as well as a provider of gun smithing and gun cleaning supplies (the complete list of products and brands they sell under can be found in their official filing). The company's net sales figures for first quarter 2015 came in at $130 million, 11.5 percent below the same quarter in 2014, while net income also dropped to $8.1 million from $20.8 million in 2014. The dramatically inflated numbers in the prior quarters can be attributed to an industry-wide surge in business due to the possibility of gun control measures being introduced in the wake of the Sandy Hook school massacre. Gun buyers flooded to the market in an effort to purchase their guns before potential legislation got introduced. Subsequently, gun sales, as reflected by the number of checks ran by the FBI’s National Instant Criminal Background Check system, exploded to 19.5 and 21 million in 2012 and 2013, respectively, up from 16.4 million in 2011. (See Also: Sandy Hook's Consequences For the Gun Industry.) S&W’s profits rose along with the NICs numbers, and the company reported the highest all time earnings for fiscal year ended April 2014, with net sales total net sales of $626 million, up six percent from $587 million in FY 2013. (For more, see: How Does Gun Control Policy Affect the Stock Price of Firearms Companies?) The Rocky Years Even though Smith & Wesson has been around for over 160 years, things have not always been smooth sailing for the iconic brand. According to ClassicValueInvestors, problems began for S&W during the 1980s when an influx of imported firearms entered the American markets. Smith & Wesson was confident in its brand loyalty and ignored the threat of competition from such firms like Glock Ges.m.b.H. Only when Smith & Wesson began to lose its law enforcement contracts to the lighter, sleeker, and more powerful Austrian-made pistols, did Smith & Wesson decide to take this threat seriously. Unfortunately, by then it was too late, and S&W’s market share had plummeted. In 2000, the company would face another setback, one that almost drove it to bankruptcy. In the aftermath of the 1999 Columbine High School massacre, US President Bill Clinton proposed measures that would enforce safety and design standards, as well as impose restrictions on magazine size. Voluntarily, the fledging Smith & Wesson agreed to the restrictions, seeing a chance to be part of a "preferred buying program" with various law enforcement agencies and potentially revitalize its popularity with the public. The exact opposite occurred: the National Rifle Association immediately boycotted the company, which resonated with the gun enthusiasts who viewed Smith & Wesson’s act as a form of betrayal. The result was a 40 percent decline in sales in the year after adopting the new safety standards. Then, in May 2001, the company was sold to Saf-T-Hammer Corp., a Scottsdale, Arizona-based firearm safety and security device developer, and in 2002, the company was renamed as the Smith & Wesson Holding Corporation. Turn Around: 2004-2007 Smith & Wesson’s turn around came in 2004 in the form of a new CEO: Michael Golden, who immediately went to work in developing new product lines and reaching new customers. Immediately Golden brought on board sales specialists from Glock’s sales teams and began to use the brand name to win over key police and military contracts. Prior to this, Smith & Wesson was primarily concentrated in the retail sector. Furthermore, after conducting a sales survey and realizing that there was interest for other guns aside from pistols and revolvers, S&W began to develop rifles, shotguns, and ammunition. The results were remarkable: under Golden’s leadership, S&W’s stock went on a run from $1.45 per share, to $20.09 from 2004-2007. Unfortunately, the good times ended as abruptly as they came with the onset of the 2008 recession, as well as, losses stemming from the acquisition of Thompson/ Center Arms, which drove S&W's stock to a low of $1.53. For the next three years, it would continue to linger below $5. Present to Future After trading below $5 per share from 2009-2011, the stock has recovered to $15.69 per share as of last closing mid-June 2015. This resurgence can be attributed to a general recovery of the markets, new government contracts, successful product launches (for example, the Smith & Wesson Military and Police or “M&P” line of firearms has been very well received), and doing away with the Clinton-era policies. In lieu of a diversified portfolio, the company has decided to concentrate its efforts on winning more contracts and improving what it does best: building guns. For example, in 2012 S&W sold off its security perimeter division to FutureNet, and one of S&W’s most recent purchases in 2014, has been Tri Town Precision Plastics, a maker of polymer frames and other parts for the majority of Smith & Wesson models. The acquisition, as part of a vertical scaling process, added 70-90 basis points to S&W’s gross margins, and could be especially conducive towards the manufacturing of the popular M&P line. Also in 2014, S&W acquired Battenfeld Technologies, an industry-leading supplier of hunting and shooting accessories that will contribute to S&W’s civilian sales, responsible for 85 percent of its revenues. However, these acquisitions pale in comparison to Smith & Wesson’s announcement to pursue the coveted US Army Modular Handgun System contract, in a partnership with defense industry giant, General Dynamics Ordnance. If successful, this would mark the first instance that Smith & Wesson has secured a highly lucrative, long-term, military contract. The Bottom Line With the cloud of gun control hanging over US firearms manufacturers, it is hard to determine what the near future holds for this sector. However, Smith & Wesson has shown resilience in spite of many systematic and unsystematic setbacks to the company. For now, it seems that Smith & Wesson’s strategy of focusing on producing firearms and accessories seems to be working for the brand, and if the highly lucrative modular pistol contract is won, there is a very strong likelihood that the brand will survive whatever the political climate may unleash. Read more: http://www.investopedia.com/articles/investing/071515/smith-wessons-business-strategy.asp#ixzz3fyeYyegU Follow us: @Investopedia on Twitter Post Comment Private Reply Ignore Thread Top • Page Up • Full Thread • Page Down • Bottom/Latest Begin Trace Mode for Comment # 4.
#1. To: Don (#0)
I love their revolvers. The only semi auto of theirs I cared for was the S&W 1911. A friend bought a S&W AR. I like it. They are a produce a good quality product.
They make the finest double action revolvers on the planet. I wouldn't buy a semi auto of theirs for any discount. Decent AR platforms... I prefer Colt, Rock River and Bushmaster They make a decent 1911... I like my Springfield better.
Agree on all points. I would not buy any of their semi auto's either, except their 1911. I prefer my Colts & Kimber. On AR's, I really like Colt, never fired a Rock River. I am considering a Rock River upper that I will place on a Colt lower, based on a recommendation from a LE buddy.
#5. To: Stoner (#4)
You won't regret Rock River quality. I have a Rock River lower I might put an 11" upper on someday. Everyone needs a tactical length ENTRY rifle.
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