Smith & Wesson Holding Corp. picked a good time to holster its gun and go camping.
The U.S. firearm maker announced on Monday -- one day before the U.S. presidential election -- that it was going to change its iconic name to... American Outdoor Brands. The idea is to emphasize how the company is increasingly branching out into other businesses besides its namesake revolvers. Smith & Wesson acquired knife maker Taylor Brands for $85 million in August and earlier this month agreed to buy Ultimate Survival Technologies, a maker of lanterns, mosquito nets and other camping gear, for an upfront payment of $32 million.
The decision to diversify probably appeared most appropriate when Democrat Hillary Clinton was seen as the likely winner in the race for the presidency. After all, she had called for gun-control measures including expanding background checks and working to keep firearms out of the hands of domestic abusers and the severely mentally ill. But Smith & Wesson's move actually makes even more sense now that Donald Trump's upset has put him in line for the White House -- that's right, the candidate endorsed by the National Rifle Association. Here's what's happened to Smith & Wesson's stock in the two days since Trump won:
The Republican's victory couldn't be sweeter for the NRA, which poured millions into positive advertising for the candidate. Trump (at least right now) doesn't believe in bans on assault weapons, like the ones used to massacre 20 children and six educators at Sandy Hook Elementary School in 2012, and he has said employees should have been armed at the Pulse Nightclub in Orlando where at 49 people were murdered earlier this year. That stance will soothe firearm advocates who fear that implementing any kind of restrictions would mean the government was "taking away their guns."
But calm among the NRA crowd is a problem for firearm makers, who profit significantly from surges in weapon stockpiling that take place every time a politician tries to address gun control. Without that kind of fear-driven buying, it's unclear what gunmakers' growth profile will look like because, quite frankly, the people who tend to buy guns probably already have enough of them.
Background checks for gun purchases and permits are on track to surpass last year's record, according to U.S. federal data. There have been 22.2 million such checks so far in 2016, with every month showing a gain over the previous year. Now, a background check doesn't necessarily mean a gun was sold, but it's a reasonable takeaway that gun sales have been on the rise. However, the same people seem to keep buying them because the percentage of American households that own guns is holding steady at best.
A Gallup poll conducted in October 2015 found that 41 percent of American households had a gun, compared with 40 percent in 2005 and 51 percent in 1993. According to a study published by the General Social Survey last year, 31 percent of households reported having a firearm in 2014, essentially tying with 2010 for the lowest level in about 40 years.
It's telling that even before the results of the election were known analysts were projecting that Smith & Wesson's revenue growth would slow significantly in 2018. After years of gangbuster growth, there has got to be a point where even the most die-hard gun lovers don't need more. The latest updates to analysts' estimates were in October; presumably those numbers may have further to fall in a Trump presidency.
Smith & Wesson isn't abandoning its heritage. The name will continue to brand its weaponry and management went overboard to make clear it still thinks guns are important. But the name change is still a significant shift that reflects the economic reality for firearm makers. In addition to being less volatile, accessories and outdoor gear are higher-margin products. In the quarter ended in July (which doesn't include contributions from its recent acquisitions), Smith & Wesson reported a gross margin of 47.3 percent for its outdoor products segment, compared with 41.9 percent for its firearms unit.
Trump isn't going to take away your guns. But he also may not make people want to buy them.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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