Smith & Wesson now sees its April quarter sales around $129 million versus the consensus of $119.8 million and versus its prior range of $113 million to $118 million.

The company’s preliminary firearm order backlog increased to about $439 million, up about 135% versus a year ago and up about 121% sequentially.  Ongoing strength in pistols and modern sporting rifles helped, as did a successful product launch.

No one wants to admit it this, but it seems as though gun demand may be running cyclical around election cycles as well.  Smith & Wesson shares are up over 5% at $6.59 versus a 52-week range of $2.29 to $8.62; Sturm, Ruger & Co. Inc. (NYSE: RGR) is down by over 5% at $40.13.  The difference between the two companies in size is that Smith Wesson is worth $428 million and Sturm Ruger is worth $768 million in market cap.

Alliant Techsystems Inc. (NYSE: ATK) has other operations tied to defense and space launches, but it is the leader in bullet manufacturing. The group’s products include brands such as Federal Premium, CCI, Speer, RCBS, Alliant Powder, Champion, Weaver, Eagle Industries, and Blackhawk! Industries. Alliant’s shares are up only 0.1% at $51.83 today and the 52-week range is $48.00 to $72.84.

Dirty Harry… “Well, we’re not going to just let you walk out of here.” Who’s We? “Smith, Wesson and me”

JON C. OGG

The company’s revenues from commercial aircraft sales jumped 54% to $10.94 billion and sales of military aircraft rose 27% to $4.3 billion. It’s interesting to contrast Boeing’s military business with other military contractors like General Dynamics Corp. (NYSE: GD) and Northrop Grumman Corp. (NYSE: NOC), both of which also reported earnings today. Lockheed Martin Corp. (NYSE: LMT) and Raytheon Corp. (NYSE: RTN) are scheduled to report earnings tomorrow.

Boeing’s defense and space business posted an operating margin of 9% in the first quarter, about 10% lower than its operating margin in the company’s commercial aircraft business. But the margin growth was only 0.2% year-over-year in defense, compared with margin growth of 2.7% in the commercial business.

Boeing also lifted its full-year EPS forecast from $4.05-$4.25 to a new range of $4.15-$4.35.

General Dynamics, which makes tanks and combat vehicles, reported that sales in its combat systems group fell -2.3%. Northrop reported that sales in its aerospace group, which manufactures drones, fell -8% and profits fell -2.7%. Northrop’s electronics group posted a gain in profits even as sales fell.

The proposed cut of $490 billion in US defense spending over the next 10 years will certainly have a larger impact on General Dynamics and Northrop than it will on Boeing. Still today’s report from the US Census Bureau on durable goods orders is not too encouraging for Boeing either. Of a decline of $7.7 billion in new orders for aircraft and parts, some $7.1 billion of the drop came in non-defense orders (our coverage here).

The backlog of orders for non-defense aircraft is up 15.6% compared with March 2011 and the defense backlog is up 5.6%. But those backlogs are likely to shrink as new orders, especially for non-commercial aircraft, are filled.

Lockheed is expected to post EPS of $1.70 on revenue of $10.56 billion tomorrow. Raytheon, also scheduled to report earnings tomorrow, is slated to post EPS of $1.16 on revenue of $5.77 billion. For both the EPS estimate is lower than year-ago actuals, while the revenue estimates are higher.

Boeing’s shares are up 4.3% in the first half-hour of trading this morning at $76.36 in a 52-week range of $56.01-$80.65.

General Dynamics’ shares are down -1.3% at $69.12 in a 52-week range of $53.95-$75.93.

Northrop’s shares are up 2.3% at $64.18 in a 52-week range of $49.20-$70.61.
Shares of Lockheed are up 0.5% at $91.60 after posting a new 52-week high of $91.79, and shares of Raytheon are up 0.9% at $53.47 after another new 52-week high of $53.56.

Paul Ausick

Shipments of manufactured goods rose 1% in March, with machinery up 6.5%, to $32.9 billion, its highest total since the data was first published in 1992. Unfilled orders for manufactured goods rose for the 23rd of the last 24 months, up 1.2%, with computer equipment up the most, 0.6%.

Inventories increased by 0.4% in March, to a total of $375.1 billion, with transportation equipment up the most, 0.7%, the highest ever recorded. Defense orders and shipments rose by higher percentages than non-defense orders and shipments, and inventories for defense goods also fell by 2.2%.

The worst news from the Census Bureau’s report is that new orders for non-defense capital goods fell by -10.5% in the month and compared with March 2011 fell by nearly $10 billion. Defense capital goods orders rose by 10.3% in the month, but are about $4 billion less than in March 2011.

Inventories of non-defense capital goods rose by 11.9% year-over-year, while inventories of defense capital goods fell by -4.3%.

On the whole, the report indicates an economy that can’t decide whether or not it’s growing or stagnating. With new orders down and inventories up, the good news we’ve been seeing from the manufacturing sector could soon turn sour.

The Census Bureau report is available here.

Paul Ausick

Boeing reported that it delivered 5 of its newest planes, the 787 Dreamliner, in the first quarter of this year. The company also shipped 30 military aircraft in the quarter and a total of 3 satellites.

Boeing stock is down -0.12% at $73.58 in a 52-week range of $56.01-$80.65.

The agency writes

The volume of international transfers of major conventional weapons was 24 per cent higher in the period 2007–11 than in 2002–2006. In 2011, the United States and India maintained their positions as the world’s top exporter and importer of arms, respectively.

This is good news for the US, because such a large portion of overall American exports are defense products.

The agency adds

 The five biggest suppliers of major conventional weapons in the period 2007–11 were the United States, Russia, Germany, France and the United Kingdom. The USA and Russia remained by far the largest exporters,  accounting for 30 per cent and 24 per cent of all exports, respectively. The  top 5 suppliers accounted for 75 per cent of exports of major conventional weapons in the period 2007–11, compared with 78 per cent for the same five suppliers in the period 2002–2006.

And

The five largest importers of major conventional weapons in the period 2007–11 were all in Asia and Oceania: India, South Korea, Pakistan, China and Singapore. Together, the top 5 recipients accounted for  30 per cent of imports of major conventional weapons in 2007–11, compared  with 39 per cent in 2002–2006, when the top 5 recipients were China, India,  the UAE, Greece and South Korea. India, the largest recipient, accounted for 10 per cent of global arms imports. China, which was the largest recipient in 2002–2006, fell to fourth place in 2007–11

Read: The 10 Most Expensive Weapons in the World

To understand the magnitude of these weapons’ budgets, one only needs to look at the recent government initiatives aimed to save the economy. The $868 billion cost of the most expensive weapons in the world is much more than the $700 billion set aside by Congress as part of the TARP to salvage the nation’s massive financial system. It is also more than President Obama’s $787 billion stimulus package approved by Congress in February 2009.

The Pentagon breaks the costs of weapons into two categories. The first is research and development. The second is the actual costs to buy the weapons. Together, the two figures can be staggering. The total cost of the Virginia Class Submarine, for example, surpasses $83 billion. That entire amount has been and will be invested to launch only 30 of the weapons. All told, it is an extraordinary expense base to maintain America’s defense.

24/7 Wall St. reviewed the figures from the Department of Defense budget and provided by the General Accounting Office to find the 10 Most Expensive Weapons in the World.”

In the age of austerity and military budgets being slashed to deal with deficits, Iran has a chance of turning 2012 accidentally into the year of defense stocks. Alliant Techsystems Inc. (NYSE: ATK), General Dynamics Corp. (NYSE: GD), L-3 Communications Holdings Inc. (NYSE: LLL), Lockheed Martin Corporation (NYSE: LMT) and Raytheon Co. (NYSE: RTN) could all hang in the balance. With operations all but gone in Iraq and with the trend in Afghanistan being one of leaving, Iran is the obvious wild card.

If anything real ever comes out of Iran’s religious political leadership other than how neat it is to stone people over adultery, how it denies that alternative lifestyles exist in Iran, or about how it wants nuclear power for peace, this may end up making the sell-off seen in defense stocks a bargain of the century. If (or when) Iran ever announces that it has built a nuclear bomb, it likely is going to be difficult for Western nations to slash and burn too far on the defense spending. Before running out and loading up on warfare stocks, please remember … this is all “If, Then.”

Alliant Techsystems Inc. (NYSE: ATK) trades at $56.15 and the 52-week trading range is $51.26 to $78.17. Thomson Reuters has a consensus price target of $71.70, implying upside of roughly 28%. Alliant Tech currently has a lower dividend yield against peers with only a payout rate of about 1.4% and shares are up about 4% since the Thanksgiving break. Alliant is highly dependent on the business of selling bullets and it no longer has the booster-rocket business from Space Shuttle launches.

General Dynamics Corp. (NYSE: GD) trades at $66.15 and the 52-week trading range is $53.95 to $78.27. Thomson Reuters has a consensus price target of $76.16, implying upside of about 15%. General Dynamics currently yields about 2.9%.

L-3 Communications Holdings Inc. (NYSE: LLL) trades at $66.85 and the 52-week trading range is $58.30 to $88.55. Thomson Reuters has a consensus price target of $71.64, implying upside of only about 7%. L-3 yields about 2.7% in its dividend and shares are up about 5% from the Thanksgiving break.

Lockheed Martin Corp. (NYSE: LMT) trades at $81.25 and the 52-week trading range is $66.36 to $82.43. Thomson Reuters has a consensus price target of $80.12, implying that the stock is above a full-value price. Its dividend yield is quite high at about 5% and shares are up almost 5% since its $1.00 dividend was reflected in the stock in late November.

Raytheon Co. (NYSE: RTN) trades at $48.50 and the 52-week trading range is $38.35 to $53.12. Thomson Reuters has a consensus price target of $49.53, implying upside of only about 2%. Its dividend yield is currently about 3.7% and shares are up about 14% since the Thanksgiving break.

Unless something new comes out of North Korea, or unless there is more unrest in the Middle East, Iran is the big worry for the country today. With such high payouts from some defense contractors, it is worth wondering just how high some of the payouts can rise during the proliferation of austerity.

JON C. OGG

iShares MSCI South Korea Index (NYSE: EWY) tracks the performance of publicly traded securities in the South Korean markets inside the MSCI South Korea Index and its shares are down 3.75% at $49.80 against a 52-week range of $40.65 to $69.99.

There are also two more fund vehicles via and ETF called The Korea Fund Inc. (NYSE: KF), down 2.4% at $39.54, and the closed-end fund called the Korea Equity Fund Inc. (NYSE: KEF) which is down 2,2% at $8.78.  Both generally have very light trading volume.  A much smaller and often illiquid play is the IQ South Korea Small Cap ETF (NYSE: SKOR) and its shares are down 5% at $25.59 against a 52-week range of $22.90 to $35.68.

There are three active and large ADRs from South Korea that we track which have NYSE share listings: POSCO (NYSE: PKX), the Korean steel giant, is down 2.9% at $81.47 and the 52-week range is $70.47 to $118.00; Korea Electric Power Corp. (NYSE: KEP) is down 2.3% at $11.28 and its 52-week range is $8.22 to $15.25; and finally SK Telecom Co. Ltd. (NYSE: SKM) is down 2.25% at $13.82 against a 52-week range of $13.35 to $20.29.

Trying to make any bold prediction about what leadership will rise and what policies will come ahead would be like asking a gunslinger to lead a charity fundraiser for children.  Of the defense sector, Alliant Techsystems Inc. (NYSE: ATK) is a top ammunition maker and its shares are up 1% at $55.99 and rocket-maker and missile-maker Raytheon Co. (NYSE: RTN) is up 1.2% at $46.07.  Any coincidence?

JON C. OGG

The aerospace and defense company is showing that it has full faith that the 787 Dreamliner is going to contribute handily to the bottom line for years and years.  Boeing’s CEO Jim McNerney announced the declaration of a $0.44 per quarter per common share dividend.

While the company announced that reports that this increase is by about 5% over its prior $0.42 dividend, there is a lot more to the story than just an ordinary dividend hike.  This was the first hike since it raised its dividend during the recession when it paid out the first dividend of $0.42 in February 2009. 

Prior to what will have turned into a 3-year dividend hiatus, Boeing used to raise its dividend annually… 2009, 2008, 2007, 2006, 2005… The last time it kept its dividend on hold for so long was when the payout was $0.17 per share per quarter from February of 2001 to February of 2004.

Boeing shares are still down close to 2% with the broader market today at $70.62 versus a 52-week range of $56.01 to $80.65.  The new adjusted yield would represent a yield of 2.5% for new investors today. Thomson Reuters has consensus estimates of $4.46 EPS for 2011 and $4.95 EPS for 2012.

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JON C. OGG

The US House-Senate budget reduction committee, or the ‘super committee’, that is charged with recommending $1.5 trillion in budget cuts over the next 10 years has just another 10 days to deliver its recommendations before automatic cuts of $1.2 trillion kick in. If the committee fails to agree on cuts, the automatic cuts fall equally among defense spending and a variety of programs that are together lumped under the heading discretionary spending.The discretionary spending cuts would likely come from federal programs that aid the poor, education, and the elderly.

No specific cuts have been identified in the legislation that created the super committee, but to achieve $600 billion in cuts over ten years is sure to cause some pain to a variety of constituencies. That amount is increased by the $350 billion in cuts already approved by Congress over the next ten years. Trying to discern where a publicly traded company might get hurt by impending cuts is, at this point, pretty much guesswork.

On the defense end, cuts are far more likely to have an effect on publicly traded companies that have significant federal defense contracts for everything from fighter planes to software. The following chart shows the top ten defense contractors in 2011, together with the total amount of their contracts, as derived from 2010 contract levels:

Privately held DynCorp International Inc. falls just above H-P, at $2.4 billion. Excluding DynCorp, the top ten contractors are slated to post sales of $47.6 billion in federal contracts in 2011. The top ten in 2010 posted sales of $68.2 billion. So far in 2011, a total of more than $196 billion in defense contracts have been awarded. The total in 2010 reached $247 billion, and that number is almost surely out of reach for this year.

Cuts to defense spending have already begun, as the US winds down its presence in Iraq and prepares to do the same in Afghanistan. Not including the wars in Iraq and Afghanistan, the Pentagon budget for 2011 reached nearly $550 billion.