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Alliant Techsystems Inc. (ATK), Olin Corporation (OLN): Pistol-Packin’ Mamas and Profits

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It’s almost impossible to get definitive statistics on actual gun ownership rates in the U.S., with the Pew Research Center saying it’s 37% and Gallup giving 43%. One thing the polls do point toward is more gun-owners than ever before cite protection as their primary reason for owning one, with women coming in at 65% and men at 42%.

And from the Christian Science Monitor, 15% of American women are gun owners, up 3% in the the last six years. Granted that it is not a dramatic increase, but the NRA has seen almost a twenty-fold increase in enrollment in its Women on Target gun training program since 2000. One Texas woman, who makes high end gun carry purses (a crocodile bag will set you back $3,400) has seen business rise 30% this year.

When I last visited Cabelas Inc (NYSE:CAB)‘s, there were just as many women filling out gun paperwork as men. The FBI reported a 53% increase in background checks for guns in the ninety days after the election.

Earn while they learn

One thing more women are doing is signing up for gun safety classes (hey, we actually read owner’s manuals). According to Joseph Terry, a former police officer who now takes gun safety classes, it really takes about 500 rounds of ammo to be considered proficient.

Where does all this ammo come from? Two companies mainly, Alliant Techsystems Inc. (NYSE:ATK) and Olin Corporation (NYSE:OLN). Their ammo divisions are merely one division of their larger businesses, defense and chemicals, respectively. There are not a lot of pure plays on ammo as Remington, privately owned by Cerberus Capital Management, is the only company that produces both firearms and ammo.

There has been an ammo shortage in the U.S. since the election, which is only recently easing up with some imports of ammo getting through and Remington ramping up production.

CEO Joseph Rupp of Olin Corporation (NYSE:OLN) said of its Winchester ammo division on the earnings call on July 25, “The elevated level of commercial demand that the Winchester business began to experience in the fourth quarter of 2012 continued through the second quarter. Second quarter 2013 commercial sales increased approximately 60% compared to the second quarter of 2012. And as a result, Winchester achieved the highest level of quarterly segment earnings in its history.”(source Seeking Alpha transcript).

And front and center on the call, he attributed the company’s robust earnings mainly to the ammo segment (record quarterly sales of $198 million) with their other two segments, Chemical Distribution and Chlor-Alkali, both seeing softer earnings.

Like gun manufacturers Sturm, Ruger & Company (NYSE:RGR) and Smith & Wesson Holding Corporation (NASDAQ:SWHC), which had major backlogs last year, the company has seen an increased backlog of $650 million from $255 million in June 2012. This good news comes on top of lower commodity prices for copper, lead, and zinc. CEO Rupp added,”Winchester sales continue to be limited only by their ability to produce product.”

Olin Corporation (NYSE:OLN) has a trailing P/E of only 12.58. It’s shareholder friendly, paying a yield of 3.30%, on the high end for the chemical industry. The company has paid a dividend consecutively for over 86 years. Olin has been buying back shares to the tune of 1 million shares, with 2 million left in the Board approved repurchase. Surprisingly, it is only up 16.67%, possibly because it is seen as more a chemical company with a legacy ammo business.

Competitor Alliant Techsystems Inc. (NYSE:ATK) also operates in three divisions: Armament Systems, Aerospace Systems, and its Security and Sporting segment which sells ammo as well as related equipment like scopes, reloading, and other paraphernalia to the military, government, law enforcement, and commercial retailers. This segment makes up a quarter of sales.

The Armaments System somewhat overlaps as it also makes ammunition and holds a leading position in small and medium caliber ammunition in the U.S. But, it also manufactures high tech weaponry and is highly sensitive to trends in government spending as is its Aerospace systems.

Realizing Sporting systems is its bread and butter and was its best performing division. Last year, the company acquired Caliber Co and its subsidiary Savage Sports, a firearm maker for $315 million.

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