Oh to be a supplier of civilian firearms! Every one of the major manufacturers is struggling to keep pace with demand, as concealed carry restrictions are rolled back and President Obama’s reelection campaigns pushes forwards (leftwards?). While Colt makes some damn fine civilian firearms, the corporate mothership makes most of its money from sales to Uncle Sam. “Standard & Poor’s Ratings Services placed its ratings on Connecticut-based Colt Defense LLC, including its ‘B-‘ corporate credit rating, on Credit Watch with negative implications.” Rationale? “The CreditWatch placement reflects the potential negative long-term impact of the loss of a key contract . . .
The U.S. Army recently selected Remington Arms Co. Inc. for an $84 million contract to supply the standard-issue M4 rifle through 2017. Colt had been the sole-source supplier to the U.S. government since 1997, and this is the first time the Army has awarded the contract to a competitor. Colt is protesting this award but didn’t provide further details.
What more is there to say, exactly? A lot. And none of it good for Colt Defense.
We consider the recent contract loss, if upheld, a setback in the long term as Colt prepares to bid on the potential replacement rifle, currently scheduled to be awarded in 2013. Colt has been relying on international demand to offset weak U.S. demand in recent months; currently, 70% of its sales are to foreign customers. International markets represent a promising opportunity and can carry higher margins that U.S. domestic military sales. However, they also tend to attract more bidders (including European and other non-U.S. producers), and the timing and likelihood of sales is more unpredictable than for U.S. military sales.