The list of recession-proof businesses is short: booze, discount retail, consumer staples and now, it would seem, weaponry.
On Thursday, famed gunsmith
Smith & Wesson
announced a deal to acquire the privately held
Universal Safety Response
, a maker of the kinds of gates, barriers, prefab guard houses and related equipment that organizations use to keep the riffraff out, and in so doing it pre-announced some rosy fourth-quarter revenue numbers.
Investors cheered the news, sending Smith & Wesson shares up 19% to $5.88 on more than four-times the average daily volume.
The Springfield, Mass., company paid $52.5 million in combined cash and stock (based on Friday's market price) for Universal Safety, along with earn-out agreements that will go to Universal's former owners if the company hits earnings targets. Specifically, the deal calls for Smith & Wesson to pay up to 9.6 million shares and up to $26.2 million in cash.
In buying Universal, Smith & Wesson, maker of the .357 Magnum, has made its first step in a strategy to broaden its business beyond guns.
The company said in its press release that it expects Universal to bring in revenue of $100 million next year, and earnings before interest, taxes, depreciation and amortization of $15 million.
Meanwhile, Smith & Wesson said business has been so good that it will report sales of $99.5 million for its fourth quarter ended in April, up 20% from a year ago. That comes after a banner third quarter, when the company reported a 28% jump in total firearm sales. It didn't provide earnings numbers, but said its profit margin expanded to 31%.
The company will release full results for the quarter on June 22, after the market closes. Analysts are looking for earnings per share of 9 cents.
Gun-industry insiders have attributed the recent gun boom to President Obama: First-time gun buyers, it's been said, have rushed to buy firearms ahead of the new administration's assumed pursuit of tougher gun-control laws, according to a recent report by the
Other manufacturers have also seen their sales spike of late. Smith & Wesson rival, the onomonopieac
, has also been reporting brisk sales. Its profits in 2008 rocketed four-fold from 2007.
The news out of Smith & Wesson appeared to pull Stum Ruger shares higher as well. The stock was trading recently at $12.66, up nearly 9% on the session.
Copyright 2009 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.