ATK (formerly Alliant Techsystems), the ammo-making giant that Honeywell spun off some two dozen years ago, just acquired the holding company of Savage from a Minnesota venture capital firm. ATK is paying $315M cash, using cash it has on hand and an existing rolling credit facility; that’s about 5.5 times annual earnings, and ATK says it plans to be net positive on ATK earnings per share in the first year.

We should have seen this coming for several reasons:

• ATK, like seller Norwest Equity Partners, is originally a Minnesota firm, and its Sporting Group is still headquartered there (Anoka), even though it’s had to relocate corporate HQ to the shadow of the flagpole due to its dependency on government contracts;
• Everyone dependent on military contracts is looking to diversify, and Savage and its fellow brands (Savage Range Systems and Stevens) have almost zero military contract exposure;
• and perhaps most importantly, the current CEO of Savage is a former ATK VP. He only joined in January, when the CEO who led Savage from near-bankruptcy in 2008 to success today retired.
• This also explains what ATK was doing when they requested the packet on Freedom Group — we thought they were looking at Remington’s ammo-production costs, but now it seems more likely that they were pricing the Savage buy, and ratholing Freedom’s financials for future reference.

ARLINGTON, Va., May 13, 2013 /PRNewswire/ — ATK (NYSE: ATK) announced it has entered into an agreement to acquire Caliber Company, the parent company of Savage Sports Corporation. Savage is one of the world’s largest manufacturers of hunting rifles and shotguns, delivering innovative products for more than 100 years. The acquisition would expand ATK’s portfolio offering by adding long guns to its leading brands in commercial and security ammunition, shooting sports and security-related accessories. The transaction is subject to regulatory approvals and customary closing conditions. ATK anticipates closing the transaction in the first quarter of its Fiscal Year 2014 (FY14), which ends June 30, 2013.

via ATK to Acquire Caliber Company, Parent Company of Savage Sports Corporation – May 13, 2013. Read the whole press release.

Savage has had a history nearly as long and a rocky as Remington, with fewer legendary weapons, and fewer bankruptcies and receiverships, but it’s not completely without either. It has made everything from pocket pistols to shotguns, produced automatic weapons (including vast quantities of Lewis Guns) under license in the 20th Century, and even produced a .45 caliber competitor to the Colt that became the 1911, but its main product lines today are center- and rim-fire bolt action rifles.

Not a flipped negative — this .338 Lapua Model 110 BA Law Enforcement sniper rifle comes in Lefty, too.

The primary Savage rifles are the Model 10, 11 and 12 bolt-action center-fire rifles, and single-shot and repeating bolt-action rifles. There’s also a bolt-action shotgun, for Eastern deer and turkey hunters. A semi-auto rimfire, the Model 64, is still in production in various finishes, but the firm offers no semi-auto centerfire or Modern Sporting Rifle.

Savage guns are known for accuracy and value. An awful lot of police departments compared the Savage .338 magnum precision rifle to the much more expensive Steyr, and wound up buying the Savage and years’ worth of ammo.

Many models are also available in left hand actions, making them a good choice for that 10% for whom standard bolts are on the wrong side of the gun.

Scott Lipsett took this photo of the Model 11 Lightweight’s fluted bolt. The barrel’s free-floated in standard modern Savage practice.

The most recent Savage product introduction was a lightweight version of the Model 11, available in 9 popular calibers from .223 to .30-06, notably including two long-range specials, the 6.5 Creedmore and 6.5 x 284 Norma. The .223 version’s only 5.5 pounds before you scope it, so it’s a varmint buster that you can walk all day with, without building your biceps at all.

The well-remembered Model 99 lever-action rifle, with its Savage-specific chamberings .300 and .303 Savage, was for decades the Eastern whitetail hunter’s Winchester 94 alternative, but it is long out of production. (The last was made in 1998). However, it was this gun that led to Savage’s now-politically-incorrect Indian Head logo:

Chief Lame Deer. One good Savage deserves another! (We are so going to PC hell for that).

In 1919, Chief Lame Deer approached Arthur [Savage] to purchase lever-action rifles for the Indian reservation and the two men struck a deal. The tribe would get discounted rifles and Savage would get their support and endorsement. It was at this time in the company’s history, that Arthur Savage added the Indian head logo–a direct gift from the Chief–to the company name. By 1919, Savage Arms was manufacturing high power rifles, 22 caliber rifles, pistols and ammunition.

There are a few, very rare, Model 99 military muskets out there. Some early (Model 95) units were made for the New York National Guard , but the contract was cancelled, and the New York guardsmen went to the Spanish-American War to face Spain’s excellent Mausers with black-powder trapdoor Springfields instead. And others were made for the Montreal Home Guard, a citizen’s militia of Anglo men of substance of the WWI era. In addition to these rare rifles, Savage and Stevens shotguns were also used by the US military, notably in WWII as training shotguns for aerial gunners (as were similar Remington shotguns; all of these weapons used the Browning long-recoil system and resembled the Browning A5).

The Model 99 is the “other” lever action. It was much stronger than a Winchester 94, and was even chambered in .308 later in its run.

Stevens guns appear to be, essentially, downmarket Savages. The make is today nearly moribund.

One of the most interesting product lines acquired in the purchase is Savage Range Systems. You may have seen or used the “snail trap” or a “wet snail trap” range, you’ve used their product. (The indoor range we’re members of, in Manchester, NH, has such a trap, as does one of our favoriet “away” ranges, Silver Eagle Group in Virginia). They’ve made an environmentally safe and friendly trap that safely decelerates up to .50 BMG with no lead spatter, and makes recovering the lead child’s play. They even have completely diffetent technology retrofits for old ranges that don’t have room for a snail trap, using innovative rubber media. We can’t remember, but think AWG’s cool mobile range used a SRS trap. They also make a decent shoot house that’s miles above our tire houses from Blue Light/SOT days. (One thing about being retired is you totally envy the guys who are doing your old job today, as they have cooler toys. But sometimes they envy us, because in our day, we had more freedom when we were away from the flagpole. You can’t really micromanage an SFODA by daily 120-group Blind Transmission Burst, although we did have a few leaders who tried).

Savage Range Systems is the one element of the new buy that is, like most of ATK’s other business, highly exposed to government budgetary mismanagement. Indeed, ATK is suffering a little right now, due to the sequester and due to NASA’s budget cuts and reorientation away from space and towards domestic and foreign policy — ATK is a big producer of rocket stuff.

ATK is best known as the primary small-arms-ammunition producer to the DOD, but it is a remarkably wide-ranging conglomerate that does everything from put the mission suites in the (probably stillborn) MC-27 special operations aircraft, to put 1st-shot cold bore handspan precision in artillery rounds, to making a 5.56mm tracer round that sort of works. In addition to, and largely as a spinoff of, its military-ammunition dominance, the company already had a portfolio of sport-shooting and personal-defense firms. It was, however, lacking a firearms manufacturer. ATK’s Sporting Group now has remarkable vertical integration in the sporting arms market, as its brands include:

• Ammo: Blazer, CCI, Estate Cartridge, Federal Premium, Fusion, Speer..
• Guns: Savage, Stevens.
• Other: Alliant Power, Blackhawk!, Champion (targets), Gunslick, Outers, RCBS, Savage Range Systems, Weaver.

So now they can put the gun in your hand; the scope and rings on, and bullets, in the gun; the case to carry it to the range to sight it in; the range itself; the targets to observe and adjust your group; and the sling to carry it on the big hunt. Then, they’ll sell you the rig to reload the casings you’ve expended so far. They’ll make money selling you the razor and the blades.

And the Savage Group, part of ATK’s purchase, also includes BowTech Archery, so you can do it all over again during next bow season.

The workers in Westfield are anxious, but Massachusetts’s anti-gun politicians, unlike their peers just west in Albany, or just downriver in Connecticut, have directed their vilification more at the legal users than the makers of sporting arms, so there’s less reason to bail than for NY or CT based firms. Also, ATK has a history of leaving alone those profitable subsidiaries with established, skilled workforces. Savage Range Systems will benefit from ATK’s reach in Washington and contract savvy, but the big winner is ATK, which has been jonesing for a long-gun maker for quite some time. And perhaps that lobbying and contract savvy will mean Remington finally gets some competition the US sniper rifle contracts it’s had a lock on for over 50 years. .

We wish Savage and ATK all the best with this new venture.

Update

Here are some links for you.

Savage Arms website. They also have a Facebook site linked from that page.

Savage Range Systems web. You can also get there from snailtraps.com.

ATK web should give you some idea of the company’s reach and depth. ATK facebook. They like to hire veterans, by the way.

The Springfield, MA, Daily Republican on the sale of what’s a local business (Westfield is a few miles west — where else? — from the decaying, crime-saturated milltown of Springfield). This article has quite good recent (last 20 years) history of Savage, probably dredged from the paper’s morgue.

An article with the Minnesota business angle.

Update:

The Wall Street Journal’s Amy Or writes a post on the sale, strongly implying (without actually saying) that the motive for the sale was Norwest’s desire to divest evil, icky guns. That appears to be fantasy or fabrication on Or’s part, as she cites no evidence for her implication. (More likely, Norwest did what VC firms do, turned a very good profit in about one year of investment). Or is a byline you probably want to watch for — a dishonest, fabricating reporter. (But isn’t that threedundant?) Of course, what do we know, we’re just MBA investors who know the industry a bit, not innumerate credentialed-but-uneducated J-school grads.

In a post to the company’s Facebook page, Remington executives made several points:

• They’re staying put in Ilion, New York.
• They do not care for the NY SAFE Act and sound like they’re going to work politically to overturn it.
• They resent the implication that their latest DOD contract was somehow a payoff for supporting gun control. (This seems plausible. Such large contracts take a long time to set up, and you can’t say that about the SAFE Act, the most reckless and spastically jerry-built bricolage in the long and grim history of legislation).

Remington has a long history in Ilion… a history in which the name has outlived several of the companies that bore it. Originally founded by Federal era gunsmith Eliphalet Remington II in 1816, the firm has been renamed, reorganized, recapitalized, and rejiggered more times than the company’s online history admits. It has been owned by a remarkable range of entrepreneurs, businessmen and gun makers, and currently is the largest jewel in the crown of the Cerberus Group’s collection of gun-industry companies. It has important military contracts and manufactures the M24 and M2010 sniper rifles and the M4A1 carbine, but the bulk of its sales are sporting arms for civilians.

Since Eli’s first homebuilt flintlock rifle made him an accidental gunsmith, historically significant Remington arms have included:

• The 1858 revolver and its 1875 cartridge development.
• The Model 95 .41 rimfire Derringer, introduced just after the Civil War.
• The single-shot Rolling Block rifle, which was made for military and civilian purposes in the 19th Century (crossed Rolling Blocks adorn the flag of Guatemala, where the gun was military issue at independence).
• The Remington-Lee rifle, the first small-caliber, smokeless powder gun used by the United States.
• Contract manufactured P14 (British), M1891 (Russian), M1903 and M1917 rifles.
• The M8, the first successful high-powered semi-auto rifle for hunters.
• The 700, an extremely successful bolt-action sporting rifle that spawned the military M24, M40 and M2010 sniper rifles.
• The 870, the most successful pump-action shotgun, period.
• The ingenious (and arguably over-engineered) Model 51 pistol.
• The Nylon 66, the earliest polymer-receiver firearm (a .22 rifle with space-age styling and materials, introduced in the space-age sixties).

All were made in Ilion and the workers, some of whom come from families that have worked at Remington for generations, live in the surrounding area.

The full text of the Remington statement:

To our Remington fans,

We believe the NY SAFE Act is unconstitutional and was passed in a questionable fashion.

Remington and its employees worked diligently with pro-gun legislators to prevent the Act’s passage. We actively participated in the Albany rallies and drove the letter-writing campaign to stop this anti-gun legislation.

The recently awarded Department of Defense (Special Operations Command) contract, questioned by some as a “pay-off,” has been in development for years — it has nothing to do with NY State.

While we are unhappy with the misguided acts of our elected politicians, Remington will not run or abandon its loyal and hard working 1,300 employees without considerable thought and deliberation. Laws can be overturned and politicians voted out of office, but the decisions we make today will affect our people, their families and entire communities for generations.

Please bear with us as we determine the most appropriate way to satisfy our customers and protect our employees.

You may read into that what you like, but what we don’t see there is, “We lost, get over it.” What we see is more like John Paul Jones’s famous shout of defiance, when asked to strike his colors.

It’s going to get interesting in upstate New York.

(Hat tip: Innovation Trail via the indispensable   Wire).

It was a subtle thing. But a false number in a Reuters report that was published Monday night may have caused Sturm, Ruger shares (RGR on the New York Stock Exchange) to soar in aftermarket trading — only to deflate when the error was corrected at midmorning today, long after the market opened.

The initial version of the story was very different both in structure and in detail from the corrected version. But the key problem was these lines (which were not juxtaposed in the orginal, but had non-pertinent information in between them). The first story was timestamped “Mon Apr 29, 2013 6:43pm EDT”:

Net income rose to $23.7 million, or $1.20 per share, in the quarter ended March 30, from $15.5 million, or 79 cents per share, a year ago.

Analysts on average expected a profit of $1.01 per share on revenue of $112.3 million, according to Thomson Reuters I/B/E/S.

The first line, above, was correct; the second, not. The corrected version led off with the correction, inserted a series of bullet points (interjecting another error), and corrected those analyst expectation numbers. This story was timestamped ”Tue Apr 30, 2013 10:11am EDT”:

Net income rose to $23.7 million, or $1.20 per share, in the quarter ended March 30, from $15.5 million, or 79 cents per share, a year ago.

Analysts on average expected a profit of $1.01 per share on revenue of $131.7 million, according to Thomson Reuters I/B/E/S.

The irony is that the correction didn’t change the profit expectation, the really important thing, but the revenue prediction. Current revenues were stated correctly in both stories: $155.9 million. Using the correct prediction ($131.7m), though, made the revenue bump over expectations an excellent 18%, rather that the erroneous prediction’s ($112.3) astronomical 39%.

The significance of using the correct the analyst expectation is this: the market runs on information. It is generally assumed by market participants and analysts that it is an efficient market, and that all current information, including the state of current expert expectations, is priced in. A major divergence from analyst estimates means that the expert expectations were not priced correctly, and usually produces movement in the stock.

The Ruger filings and this story drove the stock from $49.05 at closing to as high as $52.34, a jump of 7%. Profit taking — and the correction — dropped the stock back to $50.30 by midday; by 1300 (time of this report) the solid fundamentals seemed to be sinking in, as the quote had risen to $51.37. But the reasons behind the fluctuation are uncertain; it’s very difficult to tease out the degree to which each factor drove the stock up and down, and it could close higher — or lower.

The Gun Wire was one of many innocent aggregators to pick up the early, misleading Reuters Ruger story.

The erroneous Reuters Ruger story was featured at Google News, by financial news sites such as Yahoo Finance’s Ruger page, and by the influential gun-news aggregator The Gun Wire.

The correct information about Ruger was always available in Ruger’s April 29 SEC filings, but few people other than investment analysts read these filings, the 8-K (Results of Operations and Financial Condition) and 10-Q (Quarterly Report) forms. But the error came in information from outside the company’s release: analyst estimates collected by Reuters themselves.

An interesting fact in the press releases accompanying the reports that Reuters chose not to highlight was that over half a million Ruger firearms were sold by Ruger distributors to retailers in the first quarter of calendar 2013. (514,200 to be pedantic; Ruger doesn’t track sales to individuals). They also didn’t mention Ruger’s backlog of 9 months’ production, 1.5 million guns on order from Ruger distributors, who are not stockpiling the guns — they’re being moved right along into retail channels.

An interesting fact that Ruger did mention in the press release, and Reuters and other picked up, is that Ruger says that 35% of its sales are new products, including the LC380 and SR45 pistols which began shipping in Q1 (perhaps also the 10/22 takedown, but they don’t mention that). This demand for novel products hints that Ruger’s growth isn’t just because of the current superheated buying climate.

How did the error happen? The Reuters reporter mostly likely made a simple error — easy to do when you’re juggling large quantities of soulless numbers, particularly when you’re doing it in a second language (the reporters and editors on the original story were in India). That’s much more likely than any kind of subtle pump and dump scheme — certainly the sellers at opening, when the stock was bubbled-up at 52 plus, did well. But the stockholders who hung on to RGR may be bigger winners in the long term.  The fundamentals of the firm remain solid, and even when the current tsunami of gun-control hysteria recedes, as it must, it will leave behind hundreds of thousands of new gun owners and shooters created in these last few months, and hundreds of thousands of “dormant” ones who reentered the firearms market recently.

The correction itself was done properly, with a highly visible comment at the head of the story explaining exactly what was corrected, and what the erroneous information had been. But the report was more extensively rewritten than the correction suggested. (It also introduced a new error — either the 7% or 8% stock increase claim can be true, but not both!) Maybe a couple of reporters need to be transferred to the fashion beat?

Here’s an industry story that ought to warm the cockles of your heart: outdoor-sports chain Cabela’s has benefited from the run on guns and ammo, but they’ve also instilled great loyalty in their customers. Result? Confounded industry analysts and soaring stock values. According to a newspaper based near their captive credit-card bank, the Lincoln (Nebraska) Journal-Star:

Cabela’s Inc. stock closed up more than 16 percent, among leading gainers on the New York Stock Exchange, and hit a 52-week high Thursday after reporting strong financial results above the market’s and the company’s expectations.

Sales of guns and ammunition were the biggest part of gains at stores open at least a year, as Congress continues to consider tighter controls since the Newtown shooting tragedy.  Comparable store sales rose 24.0 percent, but excluding guns and ammunition, 9 percent.

Nine percent year over year is great for retail (especially premium retail, in this long-tailed recession), so Cabela’s leaders are clearly doing something right. But part of what they’re doing right, clearly, is still selling their customers the guns and ammo that they want. Naturally some of those customers don’t just buy guns and ammo, but while they’re in Cabela’s, take care of some of their other outdoor-sports needs.

Eat your heart out, Dick’s. It never pays to be a Dick. Especially not to your loyal customers. This is something that management at Cabela’s clearly understands. And Dick’s, equally clearly, doesn’t. The militantly anti-gun chain FFL (yeah, they’re rocking some cognitive dissonance, we can hear the cognitive tritones) had a crummy fourth quarter. They blamed Lance Armstrong (seriously). Their same-store metric, depending on how you measure it, was a feeble +1.2% or an appalling -2.2% year-over-year — numbers far short of Cabela’s that led analysts to downgrade the stock as it slid on the NYSE.

Hey, maybe the lower-Manhattan and DC journalists that praised Dick’s for courage will stop buying their hunting and fishing supplies at Cabela’s and throw a bone to… aw, we can’t even finish that sentence with a straight face. Journalists need to be putting their extra dimes in the layoff fund, not buying outdoor gear.