Gun Buying Loses the Fear Factor Under Trump, Sparking Price War

by MeDaryl • Cars • Tags: AMERICAN OUTDOOR BRANDS CORP, Barack Obama, business, Donald John Trump, earnings, Environment, Industrials, markets, New York, P James Debney, politics, S&P 500 INDEX, War

A bad dream for U.S. firearms producers has become reality: The fear-based motivation for gun purchases has evaporated and is being replaced by bargain hunting.

A price war has broken out across the gun industry with no end in sight. Sales and profits are dropping. American Outdoor Brands Corp., the maker of Smith & Wesson weapons, slashed its annual profit target by 45 percent.

“There was some fear-based buying that would take place from time to time. There is no fear-based buying right now,” James Debney, chief executive officer of American Outdoor, said in a conference call. Heavy discounting is “the primary driver for a consumer who wants to acquire a firearm.”

Blame the new business environment on Donald Trump, a self-avowed champion of gun owners and the right to bear arms. Weapons sales often spiked after mass shootings during President Barack Obama’s administration, as some customers fretted that lawmakers would respond with tougher gun-control measures.

Gunmakers aren’t reducing production enough to meet lower demand, and inventories at independent dealers is high, Debney said. He cited competitors offering rebates of $150 on sport rifles, a level of discounting he called unsustainable.

“We have to defend our position and weather the storm — ultimately until there’s a better balance between those production rates and the consumer demand,” he said after the close of regular trading Thursday. It’s unclear how long the discounting will continue, he said.

Shares Tumble

American Outdoor plunged 12 percent to $13.15 at 12:54 p.m. in New York after falling to $12.46, its lowest intraday since April 2015. The stock dropped 29 percent this year through Thursday, while the S&P 500 Index climbed 18 percent. Rival Sturm Ruger & Co. declined as much as 7.8 percent Friday, the most intraday in four months.

American Outdoor slashed its earnings target for the fiscal year through April to a range of 57 cents to 67 cents a share from $1.04 to $1.24, citing the need for price cuts to maintain market share. The Springfield, Massachusetts-based maker of the M&P Shield 9 mm handgun cut its sales goal to $670 million to $675 million. It previously forecast $700 million to $740 million.

“We believe the industry environment will remain difficult for several more months, if not longer,” Chris Krueger, an analyst with Lake Street Capital Markets, said in a note.

A record number of background checks, a proxy for gun purchases, during Black Friday had sparked investor hopes that gun demand had hit bottom. But that holiday buying was merely a sign that consumers were waiting for steep bargains, Debney said. The National Instant Criminal Background Check system dropped 12 percent in November from a year earlier.

Tracking Demand

The industry eventually will match production with gun demand, and the large discounts will diminish, Debney said. Consumers are still driven to buy weapons on concerns over their personal safety, he said. The big unknown: What is the long-term level of demand under an administration that doesn’t spark concern over possible firearm regulation.

“Where do we settle out in terms of the size of the market?” Debney said. “We just don’t know.”

October 3, 2017

Las Vegas Horror Drives All-Too-Predictable Gun Stock Rally

by MeDaryl • Cars • Tags: AMERICAN OUTDOOR BRANDS CORP, business, Elections, Gun Control, guns, Las Vegas, National Rifle Association, OLIN CORP, Orlando, politics, Stocks, White House

The grim predictability of stock-market reactions to U.S. mass shootings—where before a final tally of casualties can be reached, shares of gun makers rise—continued Monday in the wake of a Las Vegas attack that killed at least 58 and wounded 515.

Historically, gun stocks have experienced a bump after a mass shooting for reasons both political and emotional. Gun sales typically rise over concerns that a deadly event could lead to more stringent gun-control legislation. An additional driver of sales, and by extension shares, is the rush by some consumers to purchase guns to defend against future attacks.

Authorities said that Stephen Craig Paddock opened fire from the 32nd floor of the Mandalay Bay Resort, high above a crowd attending the nearby Route 91 Harvest Festival concert. The shooter, originally reported to have been killed by officers, may have shot himself before they entered his hotel room, police said. As local hospitals worked to treat the injured, the south end of the iconic Las Vegas Strip was shut down. The motives of the 64-year-old white gunman remain unknown, police said.

As news of the attack spread, firearm-related stocks began to rise. Olin Corp., the maker of Winchester ammunition, rose almost 7 percent. American Outdoor Brands Corp., formerly Smith & Wesson Holding Corp., was up about 3 percent, and Sturm Ruger & Co. rose almost 4 percent. Following the Pulse nightclub shooting in Orlando, Fla., last summer, which left dozens dead, Sturm Ruger and Smith & Wesson saw stock prices increase. The same phenomenon occurred after the San Bernardino, Calif. shooting in late 2015, which left 14 dead.

In the past, gun rights supporters and organizations such as the National Rifle Association have warned of future regulatory efforts Democratic administrations may try to impose using a mass shooting as justification. This pattern continued throughout the Obama administration, even when the Democratic Party lost control of the House and Senate. Things could turn out differently, however, now that Republicans control the White House and both houses of Congress.

Gun makers have made it clear they see a connection between the partisan politics, high-profile shootings, and their business. “Concerns about presidential, congressional, and state elections and legislature and policy shifts resulting from those elections can affect the demand for our products. In addition, speculation surrounding increased gun control at the federal, state, and local level and heightened fears of terrorism and crime can affect consumer demand,” American Outdoor Brands wrote in its annual report this year, citing the “impact of news events, including terrorism” on gun buying habits.

Political change can have an adverse effect on gun stocks, too. After the 2016 election of Donald Trump, who has espoused less-strict gun control policies than those of his Democratic predecessor, gun stocks sank. American Outdoor Brands has seen a double digit stock decline in the months since the presidential election.