Gunmakers Sink as Forecast Sparks Doubt Over Future Under Trump
(Bloomberg) -- Gunmakers tumbled the most in more than six months as a surprisingly weak forecast from the maker of Smith & Wesson weapons sparked doubt that the industry could sustain its strong growth without Barack Obama as a foil in the White House.
Gun purchases climbed over the eight years Obama was in office amid fears that he would move to tighten firearm restrictions. With each mass shooting, sales spiked as people stocked up. President Donald Trump has expressed support for gun ownership and fashioned himself a champion of the Second Amendment right to bear arms, perhaps easing anxiety that the window to buy guns might close soon.
Background checks, a proxy for gun sales, have been weak since he was elected in November. Inquiries to the National Instant Criminal Background Check System dropped 10 percent in December through May from the same period a year earlier, dropping in five of those six months. Checks more than doubled to 27.5 million last year from 12.7 million in 2008, the year before Obama took office.
“We believe the industry environment will remain difficult for at least two more quarters, if not longer,” Chris Krueger, an analyst at Lake Street Capital Markets, said in a note on Friday.
His comment came a day after American Outdoor Brands Corp., which owns Smith & Wesson, forecast that it would earn $1.42 to $1.62 a share for fiscal 2018. That missed the $1.67 estimated by analysts surveyed by Bloomberg. Demand is being affected by heavy past promotions that pulled sales forward into the final quarter of the fiscal year that ended in April and as retailers work off elevated inventories, the Springfield, Massachusetts-based gunmaker said.
American Outdoor fell 6.7 percent to $22.33 at 3:27 p.m. in New York. Earlier, the shares tumbled 11 percent, the biggest intraday drop since Dec. 2. Stock in rival Sturm Ruger & Co. fell as much as 9.4 percent, the sharpest decline since Nov. 10.
Gun sales are expected to decline this summer from a year earlier, when a massacre at an Orlando night club spurred purchases. Background checks jumped 29 percent last June and 28 percent in July, Scott Stember, an analyst at CL King, said in a note.
“While we fully expect AOBC to weather the next few rough quarters with relative ease and point to management’s excellent track record during past corrections, the uncertain environment keeps our rating at neutral at this time,” Stember wrote.