SWBI - Smith & Wesson Fiscal Q2: Relocation Is Still Hurting

2023-12-08 09:37:11 ET

Summary

• Smith & Wesson Brands' fiscal Q2 results showed a 42% YoY improvement in Free Cash Flow due to decreased relocation expenses.
• The company expects to become debt-free and has a capital allocation plan focused on investing in the business and returning cash to shareholders.
• Smith & Wesson Brands' interest expense increased significantly and its cash position is lower than in previous quarters, but the CEO remains optimistic about demand and sales.

Smith & Wesson Brands, Inc. ( SWBI ) has just released its FY 2024 Q2 results after hours on Thursday, December 7th, 2023, as Seeking Alpha has reported here . The company missed its non-GAAP EPS estimates by nearly 30% while revenue beat by about 1%. The stock is down ~8% pre-market, after losing 3% during regular trading on Thursday. Were the numbers bad enough to justify this fall, or was this an overreaction from the market? Let's find out in the latest edition of The Good, The Bad, and The Ugly.

Before that, my only previous coverage on SWBI was back in July, when I reviewed the company's dividend safety. I had rated the stock a "Hold" back then, and subsequently, the stock has returned nearly 9% compared to the market's 1% (excluding today's pre-market action). Let's get into our Q2 review without further ado.

The Good

• As I covered in my July article, Smith & Wesson has had Free Cash Flow ((FCF)) woes in recent quarters, primarily due to its relocation efforts and related expenses. Relocation expenses went down nearly 30% YoY in Q2, and this immediately helped the company post a 42% YoY improvement in its FCF.

• SWBI expects to become debt-free and to be in a more comfortable zone on capital spending once the relocation is behind it. The company also underlined its capital allocation plan, which, while simple, is also the reason why most businesses exist: invest in themselves and return cash to shareholders.

" Finally, with only about $25 million to $30 million left to spend on the relocation, capital investment for this project is expected to conclude within the next several months. With cash generation targets above $75 million annually and normal capital spending requirements of approximately $25 million, we expect to have a debt-free balance sheet by this time next year and be in a strong cash position. As a reminder, our capital allocation plan continues to be: invest in our business, remain debt-free, and return cash to our stockholders. "

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