From Dow Jones Business News
Smith & Wesson Ahead Of Plans For Reaching Profitability
Tue Apr 2, 8:03 PM ET
By: Anne Brady, Of DOW JONES NEWSWIRES
SCOTTSDALE, Ariz. -(Dow Jones)- When the company formerly known as Saf-T- Hammer Corp. bought the Smith & Wesson gun business from Tomkins (NYSE: TKS - news) PLC last May, executives expected it to take two years to return the gun maker to operating profitability.
However, after reporting a profitable third quarter ended Jan. 31 , Smith & Wesson Holding Corp. (SMWS) executives now say they are a year ahead of schedule and expect to achieve operating profitability in fiscal 2002 ending this month. Their new goal for 2003 is 20% revenue growth, with total sales approaching $100 million.
"That's our target, to get the company back where it was," said Chief Executive Mitchell Saltz in an interview at his company's headquarters Monday. The company was profitable for 148 years before its money-losing year in fiscal 2001, he noted.
Taking the company back under a U.S. umbrella allowed Smith & Wesson to once again market itself as "American-owned," something particularly popular with U.S. consumers as patriotic fervor swept the country after Sept. 11 .
At the same time sales were rising, Smith & Wesson cut management positions and administrative expenses, which Saltz said also contributed to the company's accelerated movement toward profitability.
For the fourth quarter ending this month, Smith & Wesson now expects to report revenue of $24.3 million, up from $21.6 million in the third quarter, for total annual sales of $77 million, Saltz said. He projects fiscal 2003 sales of $96.6 million.
In the third quarter, the company reported net income of $1.28 million, or 7 cents a share, but Saltz said the profit would have been a lot higher if not for the high interest expense the company was paying on debt. He expects some of that debt expense to be reduced.
The company announced Monday that it executed a 12-year $15 million loan agreement with BankNorth at 5.85% for the first two years, allowing Smith & Wesson to pay off a $10 million note owed to Tomkins PLC at 9% and a $5 million note to Colton Melby, a board member, at 12%. (When Saf-T-Hammer bought Smith & Wesson last year for $15 million and the assumption of $30 million in debt, it borrowed $5 million from Melby for a down payment and still owed Tomkins $10 million.)
Smith & Wesson was founded in 1852 in Norwich, Conn ., by Horace Smith and D.B. Wesson. The Wesson family sold the company in 1965, beginning a series of ownership changes, including the 1987 sale to London -based Tomkins for $112.5 million.
'The Ant Eating The Elephant'
Saf-T-Hammer was a small, start-up trigger-lock company with virtually no revenue when it was approached by Tomkins about buying Smith & Wesson. The gun maker was concerned about mounting litigation and had fallen out of favor with some gun owners after agreeing to adopt wide-reaching safety measures.
In February, Saf-T-Hammer changed its name to Smith & Wesson Holding Corp. and the ticker symbol was changed from SAFH to SMWS. Just recently, the company has started incorporating technology and devices developed by Saf-T-Hammer into Smith & Wesson products, Saltz said.
"It was sort of the ant eating the elephant to some degree," he said of the acquisition.
Even so, the ant still appears to be hungry.
The company is looking for more acquisitions and joint ventures to further expand its product line and increase revenue.
"We anticipate that due to possible acquisitions and licensing deals, revenues could ramp up pretty quickly," said President Robert Scott.
Later this week, Smith & Wesson likely will announce a worldwide distribution agreement with a medical products company that has developed a surveillance tool for use by law enforcement personnel, Scott said. Smith & Wesson, with its many law enforcement customers, will market and sell the tool.
"We provide instant credibility," Scott said.
The company hopes to grow its catalog sales of branded accessories, apparel, gifts and collectibles, as well its sales of sporting goods and high-tech solutions for law enforcement.
Another goal of Smith & Wesson for the coming year is moving from the Over- the-Counter Bulletin Board to the American Stock Exchange or Nasdaq. The company meets all the requirements for moving off the bulletin board except for stock price, Saltz said. He added that he had considered a reverse stock split, but now believes that if the company continues to post quarterly profits, the stock price will rise enough within one year to allow the company to move to a larger exchange.
The stock price has more than doubled since mid-February, rising from $1 a share to a 52-week high of $2.96 last month. It rose 30% Monday on news of the loan agreement. It closed Tuesday at $2.25, down 5 cents, or 2%, for the day.
The potential threat of legal settlements or awards remains, but Saltz and Scott indicated they are growing increasingly confident that the gun industry will not be held responsible in court for the costs of gun-related violence. Scott pointed to the city of Boston 's recent decision to voluntarily drop its lawsuit against the gun industry.
Seventeen similar suits are pending involving 26 other cities. Several others have been dismissed by various courts.
"The gun industry has more rules and regulation on the sale of our products than any other industry I know of," said Saltz. Scott added that Smith & Wesson has been putting locks on guns for five years.
"We feel very confident," he said.
Smith & Wesson was one of the gun makers named last week in a lawsuit filed by Jersey City, N.J. , alleging that gun makers sell weapons in states with lax gun laws, knowing the guns will be used to commit crimes in states with more rigorous regulations. |
