American gun enthusiasts can expect their hobby to get a little more expensive this year. The rising commodity prices are driving up the cost of ammunition.
Analysts warn that surging ammunition costs will produce a ripple effect throughout the industry if it hasn’t already. Gun sales have tumbled year-over-year, stock prices have taken a nosedive, suppliers’ debt levels have soared, and some companies are filing for bankruptcy.
The nation’s firearms industry has experienced a significant downturn in the last year. Since there is a reduced risk of gun confiscations, restrictions, and prohibitions under President Donald Trump and the Republicans, consumers are not feeling a sense of urgency to buy.
Gun owners may be pleased by these trends, but it creates headaches for businesses specializing in firearms and ammunition – not to mention investors.
Bullet Prices Shooting Upwards
The traditional bullet core material is lead, while jackets are widely manufactured with copper. Over the last nine months, these commodities have surged: lead prices have advanced roughly 10% to $1.20 per pound, and copper prices have gone up as much as 15% to $3.20 a pound.
Vista Outdoor, the owner of Federal Premium Ammunition, CCI, Estate Cartridge, and Force on Force, confirmed in a recent quarterly earnings call that it hiked bullet prices in January. Chris Metz, Vista CEO, announced that a second increase will happen in April. Their price-tags rose “in the low- to mid-single digits.”
The company’s financials are taking a hit. Third quarter sales at Vista’s Shooting Sports were $286 million, down 21% from the same time a year ago. This stems from a plunge in demand for ammunition and firearms.
Despite the decline in sales, Metz assured investors that shoppers have been “very understanding.”
He told shareholders last week:
“We're fortunate that we have extremely close relationships with our customers. We are putting forward price increases that we think are realistic and, so far, what we've seen from buying behavior is no real changes.”
Metz thinks that higher ammunition prices will cause competitors to follow the same trend.
Is the Gun Industry Out of Bullets?
Gun stocks have been quiet since Republicans took over 1600 Pennsylvania Avenue and Capitol Hill. Despite quite a few mass shootings under President Trump, gun makers’ shares have barely budged.
Over the last 12 months, Sturm Ruger & Co. shares have slipped 2%, American Outdoor Brands cratered 46%, and Vista Outdoor fell 6%. ETFs that do have gun stocks have remained relatively flat. Following last week’s deadly Florida high school shooting, gun stocks traded higher, but then immediately erased those gains.
Some gun companies are going out of business. Firearm manufacturer Remington Outdoor Company announced last week that it will be filing for Chapter 11 bankruptcy protection after 200 years in business. Observers say this could initiate a tidal wave of problems for the firearms market.
It wasn’t always like this. During the administration of former President Barack Obama, gun stocks were booming as he routinely introduced executive action for tougher gun control laws. Gun owners may not have appreciated his efforts, but gun investors were pleased. Obama turned out to be the gun industry’s best friend.
There were generally two trends in the Obama years: gun stocks would lift higher in the aftermath of a shooting amid fears of gun control, or gun stocks would plummet as private equity groups pulled their funds from these markets because of the bad publicity.
President Trump and the GOP may be defending the Second Amendment and the right to bear arms, but gun investors might be yearning for the days when the president actively tried to advance gun control. Here is an important statistic: Smith & Wesson shares ballooned some 800% between November 2008 and January 2016. Is it such a surprise then that the former president owned ammo and firearm stocks? No wonder why he wanted to rein in guns.
Will higher bullet prices affect your firearms? Let us know in the comments section!
