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Smith & Wesson Hits Target, Reloads for 2014

Stocks in this article: SWHC RGR CAB

NEW YORK (TheStreet) -- Smith & Wesson (SWHC) shares shot higher in after-hours and morning trading as investors loaded up on the gun maker when it reported a larger caliber than anticipated in revenue, earnings and guidance during its fiscal third quarter ending January.

Smith & Wesson reported adjusted earnings of 35 cents per share, 6 cents above Capital IQ Consensus Estimate of 29 cents. Revenue jumped 7.1% year-over-year to $145.9 million, $3.6 million above the $142.3 million estimate.

The reported 30% surge in handgun revenue was especially surprising considering Sturm, Ruger (RGR) CEO Michael Fifer's recent conference call comment warning shareholders that 2014 sales are coming down to more "realistic" levels after surging in 2013. Cabela's (CAB) also reported soft gun and ammo sales a couple of weeks ago, lowering expectations.

Smith & Wesson's gross margins continue to expand and reached 40.2% of net sales, 3.6% above the 36.6% gross margin in the comparable quarter 2013. Gross profit was $58.7 million, $8.8 million above its year-ago quarter of $49.9 million.

Operating expenses were $27.5 million (18.9%) compared to $21.9 million (16.1%) during the comparable quarter last year. Operating margin improved modestly to 21.3% compared to 20.6% in the prior year. Net income was $20.1 million a 34.6% increase year-over-year.

Smith & Wesson's highly popular M&P series pistols expanded its market share and contributed significantly to revenue. CEO James Debney said in the conference call that channel inventory remains low for M&P Shield, M&P 15 sport rifles, SDVE polymer pistols, 1911 model and revolvers.

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