Shares in American Outdoor Brands, owner of Smith & Wesson, jumped after the company planned to split in two, saying banks' reluctance to deal with firearms companies was overwhelming the rest of the business.
The company also saw higher insurance bills, its chief financial officer said on Thursday, as the gun industry prepares for the outcome of a court ruling related to the Sandy Hook massacre, in which 26 people were killed in an elementary school. from the US in 2012.
American Outdoor said it would separate its arms-making business from the rest of the company, whose products include knives, rifle sights and other outside equipment.
The company sought to lower its exposure to volatile arms sales by expanding the aftermarket, but acknowledged the "changes in the political climate" that justified a complete split.
Jeffrey Buchanan, chief financial officer, told analysts that the foreign products company should have greater access to banks, as some lenders have adopted policies that prevent them from working with arms manufacturers. He also said the insurance market "has hardened over firearms."
Barry Monheit, the company's chairman, said in a statement: “There have been significant changes in the political climate and in the economic, investment and insurance markets since we embarked on what we believe were our successful diversification efforts. "
American Outdoor shares opened more than 6 percent on Thursday and climbed more than 3 percent in lunchtime trading in New York.
The company said its restructuring would be conducted as a tax-free dividend to shareholders of the offshore products business, which is expected to be completed in the second half of 2020.
The results will be two independent publicly traded companies: a unit for outdoor products and accessories whose brands include Crimson Trace, a laser sight supplier and knife manufacturer Bubba Blade, and another composed of 167-year-old Smith & Wesson firearms and related business.
This week, the US Supreme Court declined to block a lawsuit filed by families of Sandy Hook victims against rival Smith & Wesson Remington, in a case that could extend liability for arms companies.
"We have been working on our insurance here for a few months because the insurance market has hardened over firearms," Buchanan told analysts on Thursday. “Every insurance company had, in essence, already dialed this decision as part of their diligence with us.
Firearms manufacturers have struggled with weaker consumer sales in recent years. Retailers stocked guns in 2016, expecting a flood of demand during the US presidential election season. But sales cooled after Donald Trump's victory eased gun owners' concerns about possible new restrictions on purchases.
After reaching a record in 2016, US arms sales fell 11 percent in 2017 and 6 percent last year, according to the National Shooting Sports Foundation, a trade group. However, demand has increased in recent months, with sales rising 10% in October.
Executives at American Outdoor said the split would allow the firearms business to focus on debt repayment and the recovery of its dividends. The external products business will be spun off without the parent company's debt, which totaled $ 232 million in July.
The new Smith & Wesson Brands will manufacture rifles and revolvers under the namesake brand Thompson / Center Arms, as well as manufacture Gemtech suppressors, generating estimated revenues of $ 450 million to $ 500 million during its first 12 months as a standalone company. It will be led by Mark Smith, current president of the manufacturing services division.
Current CEO of American Outdoor Brands James Debney is expected to become head of the spun-off company of the same name. Its revenue is projected between $ 200 million and $ 210 million in the first year.