After Newtown, Gun Makers Stronger Than Ever
(NEW YORK) -- If you thought that gun makers might have suffered in the year following the Newtown massacre, you'd be wrong. Their business briefly plunged, but it has since rebounded now to levels higher than before Dec. 14 tragedy. And leading gun makers, sales, share price and profits are up.
At Freedom Group, makers of the Bushmaster rifle that was used in the Newtown shootings, net sales for the most recent quarter, which ended September 29, were a little over $347 million, up from $238 million a year before. Net income exceeded $31 million, up from $16 million the year before. Freedom Group is not a publicly traded company. Performance figures came from financial disclosures made pursuant to the trading of its debt.
The company's parent, Cerberus Capital Management, put Freedom up for sale in the days following the tragedy, saying in a statement that its prayers were with the families and communities impacted. "It is apparent," said the company, "that the Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level."
There was expectation at the time that new gun control legislation would emerge from Washington that would adversely affect the gun business. That expectation, plus the decision of some investors -- both institutional and individual 00 to dump gun company stocks led to a drop in share prices as dramatic as it was brief.
Smith & Wesson, which had been trading at around $10 a share before the shooting, plunged to a low $7.79 on December 18. But like the stocks of other gun manufacturers, it quickly recovered and has climbed since. It now stands at $12.30.
Sturm, Ruger & Co., whose shares fell briefly to $40, recently has touched $80. Its third-quarter sales of $171 million rose from $118 million a year before. Third-quarter earnings surged to $1.44 a share from 88 cents last year. The company in a statement attributes its 64 percent earnings increase to its 45 percent growth in sales.
Peter Zeuli, CFA, head portfolio manager at Philadelphia Investment Partners, tells ABC News he is surprised how well Ruger, Smith & Wesson and other gun makers have performed. Ruger's earnings he calls consistently strong. He used to own the company's shares, he says, but had sold the stock, in part on expectations that the Obama administration would push through new firearms restrictions. That has not happened.
Those same expectations have sparked a surge in buying by gun owners. During the first quarter of 2013, the FBI reports it saw a 46 percent in background checks for firearms purchases.
Randy Bateman, chief investment officer of the Huntington Asset Advisors in Columbus, Ohio, tells ABC News there's another explanation for gun makers' good times: Rural consumers have more money in their pockets. Farm incomes, he says, have risen in the past year. On top of that, hydraulic fracturing in farm states has brought in more money. That, he says, translates into increased sales by gun makes.
Cerberus has so far failed to find a buyer for Freedom Group. Someone familiar with the effort to sell Freedom says the problem is not the company's financial health, which he says is stronger than it was a year ago.
It's been a tough sale, he says, partly because Freedom Group (formerly Remington) is the biggest gun manufacturer, making it hard for a smaller competitor to swallow. On top of that, some public pension funds have decided they want to make a political and moral statement by divesting themselves of ownership of gun companies.
And finally, he acknowledges, there is an emotional dimension: the company's lingering association with a great tragedy. The mass shooting by a lone gunman left 20 first-graders and six educators dead at Sandy Hook Elementary School.
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