Smith & Wesson Maker’s Outlook Shoots Down Stock

American Outdoor Brands Corp. (NASDAQ: AOBC), maker of Smith & Wesson handguns, reported fiscal fourth-quarter and full-year 2017 earnings after markets closed on Thursday. For the quarter, the gun maker posted adjusted diluted earnings per share (EPS) of $0.57 on revenues of $229.2 million. In the same period a year ago, the company reported EPS of $0.66 on revenues of $221.12 million. Fourth-quarter results compare to the Thomson Reuters consensus estimate for EPS of $0.37 on $211.17 million in revenues.

For the full year, American Outdoor reported revenues of $903.2 million and adjusted EPS of $2.58. compared with revenues of $722.91 million and EPS of $1.83 in 2016. Analysts were looking for EPS of $2.36 and revenues of $885.17 million.

The company has now beaten consensus EPS estimates in each of the past five quarters. But that accomplishment does not stand up to a weaker-than-expected forecast. For the firm’s first fiscal quarter of 2018, American Brands forecast adjusted EPS in a range of $0.07 to $0.12 and full-year EPS in a range of $1.42 to $1.62. Analysts had estimated first-quarter EPS of $0.31 and full-year EPS of $1.63.

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Executive Vice President and Chief Financial Officer Jeff Buchanan had this to say about the coming year:

In fiscal 2018, we expect to continue employing the strength of our balance sheet, including the unused portion of our revolving line of credit, which is expandable up to $500 million, to fuel additional growth opportunities, both organic and inorganic.

American Brands (and Smith & Wesson before the name change) had seen its share price soar more than 1,300% since the 2008 election of President Barack Obama and the possible election of Hillary Clinton last year. The stock dropped almost a third of that gain following the election of Donald Trump and closed on Thursday with a gain of nearly 1,100% since late 2008.

The day after last November’s election, analysts at Wedbush noted the impact on American Brands (it was still called Smith & Wesson then):

Although good for the long-term viability of the industry, we believe that the election results coupled with a Republican Congress and choice of Supreme Court justice(s) could be a net-negative for [American Brands] as it eliminates any realistic fear of gun regulation, which has been a major driver of gun sales over the past eight years.

The company’s stock traded down about 7.7% in Friday’s premarket session to $22.09, after closing at $23.94 on Thursday. The 52-week range is $17.50 to $31.19. The consensus 12-month price target is $20.75.

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