Q2 Earnings Release Will Trigger Smith & Wesson’s Upside Potential

Smith & Wesson Holding Corp. (SWHC) will report second quarter earnings on December 10, 2013. The company reported higher than expected earnings per share during the first quarter of fiscal year 2014. However, the company’s share price fell in reaction to the release of first quarter earnings because investors were disappointed in the outlook for the second quarter. The company expects earnings per share between $0.20 and $0.22 during the second quarter. Despite a lower than expected outlook for the second quarter, the company raised its full year guidance and now expects total net sales during fiscal year 2014 between $610 million and $620 million (compared to $588 million during fiscal year 2013). The earnings per share for fiscal year 2014 will be between $1.30 and $1.35 per diluted share (compared to $1.18 per diluted share in fiscal year 2013).

Outlook second quarter

The first quarter earnings report, published on September 5, 2013, disclosed some explanations for the weak second quarter outlook. The company ended its Walther distribution agreement at the end of fiscal year 2013, which amounted for $9.7 million in sales during the second quarter of fiscal year 2013. No Walther sales will be recorded during the second quarter of fiscal year 2014. Further, the company reported that since the beginning of the second quarter, a new ERP system is in use. It is common that the implementation of a new ERP system requires a lot of effort from a company and the production could be down several days or weeks. It is difficult to predict the outcome of an ERP implementation. Therefore, I assume that the company was very cautions with its second quarter outlook. If the ERP implementation was a success (without major setbacks), I expect that Smith & Wesson will beat the average earnings forecast for the second quarter of fiscal year 2014 and will confirm its full year guidance.

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