Smith & Wesson Holding Corporation announced financial results for its fiscal 2012 third quarter ending Jan. 31.

Third Quarter Fiscal 2012 Financial Highlights

  • Net sales from continuing operations for the third quarter of $98.1 million were up 23.8 percent from the third quarter last year.  The increase was driven by strong sales of M&P handguns, M&P sporting rifles, and all Smith & Wesson personal protection and concealed carry pistols. 

  • Gross profit for the third quarter was $30.0 million, or 30.6 percent of net sales, compared with gross profit of $19.4 million, or 24.5 percent of net sales, for the same period last year.  The improvement in gross profit was driven by increased sales volume and increased overhead absorption due to higher production levels; as well as cost-reduction initiatives across the organization, including the completion of the consolidation of the Thompson/Center Arms business to Springfield, Massachusetts, which concluded in November 2011. In addition, the same period last year included costs associated with the company's strategic price repositioning activities. That strategic repositioning also resulted in lower ongoing promotion costs.

  • Operating expense for the third quarter totaled $19.7 million, or 20.1 percent of net sales, compared with operating expense of $21.3 million, or 26.9 percent of net sales, for the third quarter last year.  The decrease in operating expense reflected cost-reduction initiatives across the organization as well as reduced legal fees related to the company's ongoing DOJ and SEC investigations.

  • Net income from continuing operations for the third quarter was $5.4 million, or $0.08 per diluted share, compared with a net loss from continuing operations of $2.7 million, or $0.05 per diluted share, for the third quarter last year. Net income from continuing operations for the third quarter resulted from increased sales volumes and corresponding gross profit as well as reduced operating expenses.

  • Non-GAAP adjusted EBITDAS from continuing operations for the third quarter increased to $14.8 million compared with $4.6 million for the same period last year.

  • At January 31, 2012, firearm backlog was $198.5 million, an increase of $124.7 million, or 168.9 percent, compared with the end of the third quarter last year, and an increase of $48.6 million, or 32.0 percent, from the most recent sequential quarter. 

  • Operating cash flow of $8.5 million and net capital spending of $3.5 million resulted in free cash flow of $5.0 million from continuing operations.

  • Debt was reduced by $30.0 million through the repayment of outstanding convertible notes.

James Debney, Smith & Wesson Holding Corporation president and CEO, said, “Our third quarter results demonstrated the positive impact of our concentrated, strategic focus on firearms.  We delivered sales growth across our M&P handgun and M&P modern sporting rifle categories as well as our personal protection and concealed carry pistols, while achieving a number of key accomplishments.  We continued to work on expanding our firearm manufacturing capacity to meet increased demand, an objective we plan to continue in the coming months as we address our robust backlog.  During the quarter, we successfully completed our Thompson/Center Arms consolidation, an action designed to improve efficiencies and enhance gross margins.  On the new product front, at the SHOT Show in January we launched two extensions to our M&P modern sporting rifles as well as our new Thomson/Center Arms Dimension hunting rifle. We also commenced the manufacturing of a brand new handgun that we have designed for the personal protection market.  We look forward to launching this exciting new product at the upcoming NRA show in April.  Lastly, during the quarter, we successfully sold our foundry business in New Hampshire, and we continued to work with our advisor on divesting our perimeter security business.” 

Jeffrey D. Buchanan, EVP and CEO, stated, “Our cost reduction initiatives yielded clear results in the third quarter.  Operating expenses were 20.1% of net sales, compared with 26.9% for the third quarter last year.  We are also pleased to report that we paid down $30.0 million in convertible debt during the quarter without accessing our line of credit, which substantially reduced our overall debt and further strengthened our balance sheet.  As of January 31, 2012, we had $25.7 million in cash on hand, no borrowings under our $60.0 million credit facility, and working capital of $92.4 million.”

Financial Outlook for Continuing Operations

The company is raising its anticipated net sales outlook from continuing operations for fiscal 2012 to between $395.0 million and $400.0 million, which would represent year-over-year growth from continuing operations of more than 15 percent, up from the prior outlook of 13 percent to 15 percent growth. The company anticipates total gross profit margin for fiscal 2012 to approach 30 percent and operating expense to be approximately 21 percent of net sales.  The tax rate is expected to be approximately 41 percent.

The company expects net sales from continuing operations for the fourth quarter of fiscal 2012 to be between $113.0 million and $118.0 million.  Gross profit margin for the fourth quarter is anticipated to be between 32.0 percent and 33.0 percent.  Fourth quarter operating expense is expected to be approximately $22.0 million, and the tax rate is expected to be approximately 41 percent.