Profits up for rifle-maker Freedom Group on Sandy Hook anniversary

Freedom Group, manufacturer of the rifle used in the Sandy Hook school shootings a year ago, expects earnings to have risen about 52 per cent this year.

The group, now formally known as Remington Outdoor Company, said in a release posted on its website that adjusted earnings before interest, depreciation and amortisation for 2013 would be $235m-$240m, on revenues up about 35 per cent at $1.26bn.

Almost a year after Cerberus said it would sell Freedom Group, it is instead likely to end up owning a bigger interest in the company, at least in the short term. Following a $175m financing deal this week, other investors will be offered the chance to sell their economic interest.

US gun manufacturers have benefited from customers’ concerns about tighter restrictions on gun sales following the attack in Newtown, Connecticut, which happened a year ago on Saturday.

On the eve of the Newtown anniversary, police in Centennial, Colorado, said a suspect in a shooting at Arapahoe High School had died from an apparent self-inflicted wound on Friday afternoon. A student was taken to hospital in a serious condition, sheriff Grayson Robinson said.

No new federal legislation affecting gun ownership has been passed since the Sandy Hook attack, which killed 20 children and six teachers. The new laws passed by states have tended to relax rather than tighten controls on guns by a balance of 70 to 39, according to an analysis by the New York Times.

Sturm Ruger, the largest US gunmaker by market capitalisation, is expected to report earnings up 52 per cent on sales up 39 per cent, according to analysts’ estimates compiled by Reuters. Its shares are up 49 per cent this year compared to a 25 per cent rise in the S&P 500.

Smith & Wesson this week reported a 14 per cent rise in sales and a 12 per cent rise in post-tax profits for the six months to October. Its shares are up 28 per cent this year.

However, market data suggest that, after soaring at the start of the year, gun demand in the US is falling back. In January background checks for gun purchases, an indicator of sales, were almost double their level in the same month of 2012, according to the National Shooting Sports Foundation. By November, however, they were 14 per cent lower than in the same month the year before.

In a discussion of business risks accompanying its earnings guidance, Freedom said tighter gun laws “could have a material adverse effect”. It also highlighted the importance of Walmart, the retailer.

Freedom’s guidance statement was followed by a $175m debt sale, which was greeted enthusiastically on Wall Street on Thursday. Many existing holders of the company’s $405m of floating rate debt topped up their holdings, according to people with knowledge of the sale.

The cash is intended to buy out some investors’ interests in Freedom, under a plan floated by Cerberus earlier this week. The company remains for sale, but an attempted auction earlier this year ended without a bid.

Public pension funds, including the California State Teachers Retirement System, came under political pressure to sell their investments in gun manufacturers after Sandy Hook. These investors own their stakes in Freedom only indirectly, through Cerberus-run funds which they do not want to exit.

Cerberus dropped an earlier plan to raise financing for the buyouts from a single unnamed investor, which would have required agreement from existing creditors and cost more in interest payments.

Freedom sold the extra $175m of debt at a discount of just 0.5 per cent of face value, less than the 1 per cent it offered when the loan was issued last year. The debt was trading above face value by the end of Thursday.

The top three holders of Freedom Group loans are Lord Abbett, New York Life Investment Management and JPMorgan Chase, according to Bloomberg data.

Floating rate loans have been among this year’s hottest investment properties, since they insulate holders against the risk of rising interest rates.

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