Smith & Wesson Holding Corp. reported sales from continuing operations for the third quarter were
$136.2 million, up 38.8 percent from the third quarter last year. Earnings improved to $14.6 million, or 22 cents a share, from $4.4 million, or 7 cents a year ago.
The company continued to increase its production capacity during the third quarter and has operated its plant at essentially full capacity for the last four quarters. Despite these capacity increases, the company was unable to meet the ongoing demand across all of its firearm product lines.
Gross profit for the third quarter was $50.1 million, or 36.8 percent of net sales, compared with gross profit of $30.0 million, or 30.6 percent of net sales, for the comparable quarter last year. Gross profit improved as a result of increased sales volume, leveraging of fixed costs, and a favorable product mix.
Operating expenses for the third quarter were $22.1 million, or 16.2 percent of net sales, compared with operating expenses of $19.7 million, or 20.1 percent of net sales, for the third quarter last year. The increase in operating expenses was primarily related to higher general and administrative costs associated with the ongoing implementation of the company’s new ERP system and incentive compensation. The decline in operating expenses as a percentage of net sales was primarily driven by increased sales volume and controlled spending in sales and marketing.
Operating income from continuing operations for the third quarter was $28.0 million, or 20.6 percent percent of net sales, compared with operating income from continuing operations of $10.3 million, or 10.5 percent percent of net sales, for the comparable quarter last year.
Income from continuing operations for the third quarter was $17.5 million, or $0.26 per diluted share, more than triple the net income from continuing operations of $5.4 million, or $0.08 per diluted share, for the third quarter last year.
Non-GAAP Adjusted EBITDAS from continuing operations for the third quarter increased to $33.3 million compared with $14.8 million for the third quarter last year. Fiscal year-to-date non-GAAP Adjusted EBITDAS was $101.5 million compared with $37.2 million for the comparable prior year period.
Operating cash flow of $33.0 million and net capital spending of $12.6 million for the third quarter resulted in free cash flow of $20.4 million.
During the third quarter of fiscal 2013, the company’s Board of Directors approved a program to repurchase up to $35.0 million of Smith & Wesson’s common stock, subject to certain conditions, in the open market or privately negotiated transactions on or prior to June 30, 2013. The company repurchased 2.1 million shares of its common stock for $20.0 million through this program during the third quarter of fiscal 2013 utilizing cash on hand.
James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, stated, “Our success in the third quarter was highlighted by significant year-over-year improvements in net sales, margin expansion, and bottom line profitability as we successfully executed our growth strategy, which is underpinned with a focus on firearms. Performance gains were driven by continued robust consumer demand for firearms as well as increased sales of our M&P® polymer pistols and modern sporting rifles. Based on incremental improvements in expanding our production capacity, which will be further deployed in the fourth quarter, we are increasing our financial guidance for the full fiscal year 2013.”
Jeffrey D. Buchanan, Executive Vice President and Chief Financial Officer, stated, “The strength of our balance sheet continues to provide us enhanced flexibility to invest in our core firearm business and fuel our growth initiatives. At the end of the quarter, we had no borrowings under our credit facility and a cash balance of $62.0 million. Robust free cash flow also allowed us to return value to our stockholders by buying back shares of our common stock in the fiscal third quarter for a total of $20.0 million.”
Financial Outlook for Continuing Operations
The company expects net sales from continuing operations for the fourth quarter of fiscal 2013 to be between $165.0 million and $170.0 million, which would represent year-over-year growth from continuing operations of 29.0 percent at the midpoint. The company anticipates GAAP earnings per diluted share from continuing operations of between $0.38 and $0.40 for the fourth quarter of fiscal 2013.
The company is raising its full year fiscal 2013 financial guidance. The company currently anticipates net sales from continuing operations for fiscal 2013 of between $575.0 million and $580.0 million, which would represent year-over-year growth from continuing operations of approximately 40.0 percent at the midpoint. The company anticipates fiscal 2013 GAAP earnings per diluted share from continuing operations of between $1.17 and $1.19, income from continuing operations of between $78.0 million and $79.5 million, and non-GAAP Adjusted EBITDAS from continuing operations of between $148.4 million and $150.7 million.
