Smith & Wesson Holding Corp (NASDAQ:SWHC) has exited competition to replace the U.S. Army’s Beretta M9 sidearm. The firearm maker disclosed in SEC filings that the US Army informed it that its proposal for handgun replacement was not selected to proceed to the next stage of the competition.
Earnings guidance stands
If Smith & Wesson had won the contract to replace the Army’s Beretta M9 handgun, it would have been in for a multiyear contract worth between $580 million to $1.2 billion. Despite the loss, the company said that its earnings guidance will not be affected because it had not factored it the expected windfall from the contract.
For F2Q2016, Smith & Wesson sees revenue in the range of $220 to $230 million and EPS coming in the band of $0.53 to $0.57. The company posted revenue of $207 million in F1Q2017, up from $147.8 million in the same period last year. Adjusted EPS of $0.62 increased from $0.32 in the year-ago quarter.
The sidearm replacement contract would have had a transformative impact on Smith & Wesson’s financial performance.
Collaboration with giant defense contractor
Smith & Wesson teamed up with General Dynamics (NYSE:GD) to bid for the Army’s Beretta M9 pistol replacement. Under the collaboration, Smith & Wesson would have been responsible for providing the firearm while General Dynamics would have taken care of ammunition.
It seems Smith & Wesson felt that collaborating with a giant defense contractor such as General Dynamics would have increased its chances of winning the contract to replace the Beretta M9 pistol. However, things failed to work out as expected but Smith & Wesson isn’t mourning the military-industrial complex loss.
The competition for the replacement of the US Army’s Beretta M9 pistol was expected to be a brutal one. Nearly a dozen firearm makers and defense contractors entered the competition. However, some such as Heckler & Koch gave the contest a wide berth, fearing the tough competition.
Smith & Wesson stock plunged 7.4% to $25.53 on the news. Nevertheless, the stock is up more than 16% YTD and up more than 45% for the year.
