Smith & Wesson's strong outlook triggers rise in shares

Fri Mar 9, 2012 9:43am EST

A visitor tests a Smith & Wesson gun model M&P9, 9 millimetre, at the MILIPOL International State Security Exhibition in Paris October 9, 2007. REUTERS/Regis Duvignau (FRANCE)

A visitor tests a Smith & Wesson gun model M&P9, 9 millimetre, at the MILIPOL International State Security Exhibition in Paris October 9, 2007.

Credit: Reuters/Regis Duvignau (FRANCE)

(Reuters) - Shares in Smith & Wesson Holding Corp (SWHC.O) shot up nearly 18 percent to their highest in more than two years on Friday, after the gun maker hiked its full-year sales forecast on a higher order backlog, reflecting strong demand for its guns and rifles.

The company, which competes with Sturm Ruger & Co Inc (RGR.N), Glock Inc and Taurus, reported a 60 percent surge in firearm backlog in the third quarter.

"Such a substantial increase in order backlog is a positive leading indicator for near term sales momentum, as the company should fulfill much of this order flow within the next 2-3 quarters," Wedbush analyst Rommel Dionisio wrote in a note.

On Thursday, the Springfield, Massachusetts-based company posted a third-quarter profit that beat estimates for the fourth consecutive quarter.

"Rising market share in handguns, along with robust performance in the tactical rifle business, helped drive impressive 24 percent top line growth," analyst Dionisio added.

Smith & Wesson has also been improving margins by adopting various cost cutting initiatives such as moving operations from its Thompson Center facility to its Springfield facility. It also decided to shed its underperforming perimeter security division in October.

Gross margin increased to 30.6 percent from 24.5 percent last year.

Smith & Wesson shares, which have gained more than 26 percent since the beginning of this year, touched a high of $6.68 in Friday morning trade on the Nasdaq.

(Reporting by Meenakshi Iyer in Bangalore; Editing by Viraj Nair)

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