Gotta get something off my chest about a type of news story that jacks my nads, the RECORD PROFITS proclamation. This is usually tied to an industry that the news outlet wishes to vilify, either subtly or more overtly. Big oil is a typical target, and they've been attacked recently. But a recent news story made a massive deal about how gun manufacturers have enjoyed record profits, while children were being slaughtered in schools. How evil of them for getting fat off their products killing kids. Before I go any further, it might be helpful to understand earnings and profits.
Here's a simplified example:
If I sell something for $100 and make 40% gross margin on it, my profits / earnings are $40.
If customers buy 10,000 of this item, I make $400,000 profit (earnings) with $1million in revenue.
However, if my demand dramatically increases, and I sell 75,000 units, my revenue is $7.5million and I earn $3million. In reality, my earnings would be greater, because I'm buying raw materials at better rates, due to the higher volume and more fully utilizing my factory, but let's not worry about that.
In case you missed it, Covid, civil unrest, and a Democrat being elected President drove gun sales through the roof last year. Guns sold as quickly as they hit the shelves. So, it should be of no surprise that Smith and Wesson shipped roughly 70% more firearms in 2021 than they did in 2020 with resulting revenue going from $530million to $1.1billion. It doubled in one year!!! So, of course their profits hit record highs because of math. But not not one of these stories mention revenue increasing.
So, the next time you hear a story about how some industry, who the outlet wants you to find nasty, has made record profits (with no mention of sales or revenue), you'll know it's likely a hit piece. Not as though demand for petroleum has gone sky high with the pandemic over and costs have remained low...
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