Source: http://www.americanrifleman.org/BlogEnt ... 25&id=2392
The shooting industry’s porch has always had a few big dogs lying around, but it’s only been in the past five years or so that we’ve seen a couple of bull mastiffs saunter up the steps. I refer to multi-billion-dollar behemoths that are taking a more than casual interest in the gun business.
One of them is ironically named for a mythical three-headed dog that guards the gates of hades—Cerberus. If that’s not enough to scare you, another one is ATK, which is primarily an explosives and rocket manufacturer. Yet another big dog is L3 Communications, which might be more of a heavyweight than Cerberus and ATK combined. Then, there’s an English bulldog on our porch as well—BAE Systems.
It’s not the first time that colossal canines have barked on the gun industry’s veranda. Winchester is owned by the Olin Corp., a chemical industry giant. Remington was once the property of Dupont, another chemical industry titan. Smith & Wesson was once the property Tomkins plc, a multi-national holding company.
Let’s get some size perspective here. Cerberus is a private equity company with approximately $24 billion in assets. Because it’s a private company, there’s no way to research their annual sales. However, ATK reported $4.6 billion in sales in 2009, while BAE Systems, which bought Armor Holdings—owners of Safariland, Bianchi and a number of tactical equipment manufacturers—tallied up about $30 billion in sales last year. L3 Communications rang up about $15 billion in sales in 2009.
What has attracted these big dogs? As Steve Martin observed in "The Jerk" when he suddenly snapped to what’s going on: “Oh, I get it! It’s a profit thing!”
If we look for a common denominator with the companies that these pugnacious pooches gobbled up from the shooting industry, we see several things. First, ammunition. Cerberus owns Remington and Remington is an ammunition maker as well as a gun maker. ATK owns Federal and Speer, and operates the Lake City Arsenal ammo plant for the military. Ammunition is a consumable and, as we’re all so painfully aware, consumable commodity prices can spike precipitously when demand rises.
Interestingly, the third of the “big three” ammo companies, Winchester, is also owned by a chemical giant, Olin Corp. which boasts annual sales in the $15 billion ballpark.
What else might have lured the big dogs? Guns and gun accessories. Firearms manufacturing is a mature industry with stable consumption and predictable revenue streams. If you have a couple of billion lying around to invest, it might not be a bad idea to park a few hundred million in a consumer product sector that also offers government sales potential.
Big dogs see the big picture. Firearms weathered the “tobacco lawsuits” storm and came away unscathed. If you shoot someone, it’s your fault, not the gunmaker’s. Firearms also hunkered down through the “modern sporting rifle” storm and again came out into the sunshine when Clinton’s ban sunsetted. With the Heller decision, it’s likely that gun rights will be strengthened to the point that future bans will be unlikely. Not a bad omen if you’re looking to invest in the industry.
And yes, it’s a profit thing. In its 2009 annual report, Sturm, Ruger & Co., reported sales of $271 million with $87 million gross profit. That’s a 32 percent gross profit margin, which is not too shabby for a manufactured product. Even more impressive, Ruger’s EBIDA (earnings before taxes, depreciation and amortization) was 16 percent. Those are solid numbers. Those are profitable numbers.
I welcome the big dogs with open arms and maybe a Milk Bone as a gesture of goodwill. With such powerful multi-billion-dollar guard dogs on our porch—with their lobbyists and influence on Capitol Hill—the gun business is looking safer and safer. I haven’t seen a lot of squeezing of jobs and frankly see a lot more upside than down to this trend.
