A war slowdown and lower-than-expected quarterly results have Ceradyne Inc. looking at more layoffs.
The Costa Mesa-based company, which makes ceramics mainly for the military, already has laid off 40 at its headquarters and plant this year and plans to let another 70 go from its Irvine location by the end of April.
The eliminated positions were in Ceradyne’s body armor manufacturing division, which has slowed down since military contracts for the wars in Iraq and Afghanistan peaked in 2007.
Last year, body armor sales were off about $76 million to $680 million, or about 10%.
The company has about 800 employees here working in its headquarters and producing specially designed ceramics used for the bulletproof vests and the solar and dental industries.
Last year, the company laid off another 170 people from its body armor unit.
That’s a far cry from a few years ago when wartime spending helped push the company’s stock up twentyfold from the 2003 start of the Iraq war until mid-2007.
Ceradyne’s stock topped out in the summer of 2007 and has dropped 80% since to a recent market value of about $450 million.
Lower Outlook
Last week, the company cut its outlook for 2009 on a delay in armor orders and uncertainty in Europe.
“Because the situation is unclear, we believe it is advisable to revise the 2009 guidance we provided in December,” Chief Executive Joel Moskowitz said.
The company expects to earn $42 million to $52 million in 2009, down from a December forecast of $60 million.
Revenue guidance is $465 million to $500 million, down from the company’s previous outlook of $600 million.
Ceradyne is banking on a five-year military contract for its next generation of bulletproof vests.
A $2.4 billion order for the vests, called XSAPI, was delayed after British rival BAE Systems PLC protested it.
The contract would be it’s biggest to date.
Last week, Ceradyne reported fourth-quarter profits of $21.3 million, which were down 40% from a year earlier and in line with what analysts were expecting. Sales were $138.9 million, down 27% from a year earlier and below the $144.6 million analysts were looking for.
Tough economic conditions brought on by the credit crunch also has hurt many non-military customers, according to David Reed, president of North American operations.
“We’re not seeing the same level of business,” Reed said. “It’s tough to predict when it will get better.”
Jobs lost locally may not be replaced anytime soon as the company has been looking to reduce its productions in California due to the higher cost of doing business here, Reed said.
But it’s unlikely to completely withdraw from the state anytime soon, he said.
“There’s a lot of expertise here,” Reed said. “But ultimately it’s always driven by a financial equation.”
Diversification
Since military orders peaked, Ceradyne has been looking to expand the non-defense part of its business such as solar and dental products.
Non-military sales rose by $64 million last year to $261 million.
“That trend will continue, we believe, in 2009,” said Chief Financial Officer Jerry Pellizzon during a conference call last week.
A bright spot for Ceradyne has been sales to the solar industry, where Ceradyne’s ceramics are used to hold melted silicon before that is cut into wafer thin pieces to serve as receptor cells for solar energy.
Solar industry clients made up 12% to 15% of total sales last year. This year the company is looking to grow that to 18%.
Ceradyne’s solar production mostly is in China, where it recently bought 14 acres to build a 200,000-square-foot plant at a cost of $22 million.
Acquiring companies to help bolster its non-military business also has been on its agenda.
Last July, it paid $125 million for North Billerica, Mass.-based SemEquip Inc., a company that makes equipment for the production of chips.
