Renewed vigor makes Smith & Wesson's day
CEO's strategy is for gun maker to train sights on more markets
By ADAM GORLICK
SPRINGFIELD, MASS. — Smith & Wesson may be best recognized as the brand of choice for Dirty Harry, the movie cop who warned punks his .44 Magnum was "the most powerful handgun in the world."
But that was in 1971, and much has changed in the past 36 years. Police officers want lighter-weight pistols than the bulky steel revolver Dirty Harry Callahan barely concealed under a sport coat. Soldiers need foolproof weapons that won't get jammed by the desert sands.
There are guns now more powerful than the .44, and Smith & Wesson has realized it can't get by on its name — or Dirty Harry's — alone.
That's why Mike Golden, 52, Smith & Wesson's CEO for the past two years, has targeted new technologies and sales to the military and police departments to ensure the company's future.
Except for the pistol-shaped cuff links he sometimes wears, there isn't much about him that says "gun guy." A past corporate boss at Black & Decker, Kohler and the Stanley Works, Golden knew more about power tools and toilets than the .40-caliber pistols he jokes about hardly being able to hit a target with.
"When I joined the company, I had never shot a firearm before in my life," Golden said. "I tell people the board wasn't looking to find a marksman."
When he took over the 155-year-old Springfield-based company, its earnings were flat. The country was at war, and the military's handgun contracts were all going to Italian-based Beretta. Handgun sales to police departments were mostly going to Glock, an Austrian company.
"The company had been under-managed and under-marketed for the last 10 to 15 years, at least," he said. "Our research shows that it doesn't matter whether you're male or female, old or young, Democrat or Republican, like guns or don't like guns, the perception of the brand is extremely positive. That's what intrigued me, that this brand that everybody knows and everybody loves wasn't being utilized."
Golden hired a Washington lobbying firm to go after government contracts. In the past two years, the company has made four deals worth a total of $20 million to make the 9 mm pistols the Army is giving to security forces in Afghanistan.
Smith & Wesson's earnings have seen double-digit growth since Golden took over. The company's work force stands at about 900 nonunion employees, 200 of which were hired in the past two years.
The company reported $50.8 million in sales for its second quarter that ended in October, an increase of 43 percent from the same period in the year before. Its net sale expectations for the 2008 fiscal year are about $320 million.
About 75 percent of the company's sales are in the sporting goods market, which has remained steady despite gun control efforts.
Coveting federal contracts
But government sales are still a major aim for Golden.
This year, the military handgun contract that Beretta has had a lock on for nearly 20 years is expected to come up for bid. Analysts say that deal could fetch about $310 million, and predict that Smith & Wesson's chances to land it are good, but far from guaranteed.
"The government is going to buy the guns that fit their needs and not just a brand name," said Eric Wold, managing director at San Francisco-based Merriman Curhan Ford. "They love Smith & Wesson, but they're not going to buy their guns just because they're an American company."
Golden realizes that and has quickly fused the company's popularity with a need to advance its technology by trying to reclaim ground that Smith & Wesson lost to Glock.
When Glock introduced a lightweight polymer pistol for police departments in the 1980s, Smith & Wesson's managers "thought cops would never buy a plastic gun," Golden said. They could only watch as police departments shifted to pistols made by Glock and other companies.
Golden pushed the company to come up with a product that could compete, and last year Smith & Wesson launched its M&P (Military and Police) line of polymer pistols. Smith & Wesson has so far climbed back to about 10 percent of sales to police departments, but is still dwarfed by Glock's 65 percent control of the market.
The company is taking a scrappy approach to its previously untapped markets. At this month's Shot Show, the gun industry's annual trade show in Orlando, Fla., it introduced 30 handguns. Among them was the M&P .45-caliber, which will likely serve as a prototype for the weapon Smith & Wesson offers to the military if the government takes bids for new soldier sidearms.
But Golden isn't limiting innovation to handguns alone. Smith & Wesson last month made a $102 million deal to buy Thompson/Center Arms, a New Hampshire-based long gun manufacturer. It was the first aggressive step into a field of firearms that is 80 percent larger than the country's handgun market, and the company is following up by introducing a line of shotguns at the Shot Show. This year will also see a Smith & Wesson bolt-action hunting rifle, Golden said.
"Mike has done a great job overhauling the law enforcement and military channels," said Cai Von Rumohr, an analyst with Cowen and Co. in Boston. "Now he's looking at the long gun market, which has huge potential. If he continues to capitalize on Smith & Wesson's strong brand name, the company should continue to grow."