Investors are looking for signs of stability from Costa Mesa-based Ceradyne Inc. when it reports third-quarter results Tuesday.
Once flush with military contracts for its ceramic armor used to protect troops, the company’s sales began to nosedive a couple of years ago as the Pentagon turned its focus to exiting Iraq.
Ceradyne shifted its focus to use its ceramics in other areas—including solar and oil—but has seen the downturn slow sales.
This is a sharp departure for a company that once was one of the fastest growing in the country.
Ceradyne’s stock ran up twentyfold from the 2003 start of the Iraq war until mid-2007, though it has since lost about three quarters of its value.
The company had a market value of about $475 million last week.
Ceradyne had lowered sales projections a number of times throughout the year and offered some hope at the end of the second quarter.
“We are guardedly optimistic that we have seen the worst of the recessionary downturn,” Chief Executive Joel Moskowitz said.
Analysts on average expect a third-quarter profit of $7.2 million compared to a profit of about $19 million a year earlier.
Sales for the quarter are expected to come in at $110 million, down almost 35% from a year earlier.
For the second quarter, Ceradyne posted profits of about $1 million, excluding one-time charges, which were down 96% from a year earlier.
Sales for the second quarter were $95.3 million, down 48% from a year earlier.
One analyst still is cautious.
Michael Lew of San Francisco-based ThinkEquity LLC, part of London’s Panmure Gordon & Co., has a “hold” rating on its stock because of concerns about the economy.
Any sign that Ceradyne’s sales slide is over would be welcome news for investors, Lew said.
“This is still a profitable company with a strong balance sheet,” he said. “Cash is king and there’s good value here.”
Staying profitable has come at the expense of cost cutting after Ceradyne laid off at least a third of its workforce, or nearly 600 employees, mostly at its bulletproof vest operations in California and Kentucky.
In May, it shut down a plant in France as it transferred the work to a location in Germany.
Solar
With about $200 million in cash, the company has remained healthy and could pounce on some buyout opportunities in the solar industry next year, Lew said.
Sales to the solar industry—where its ceramic crucibles are used to hold melted silicon—make up about 15% of Ceradyne’s sales.
Ceradyne’s solar production mainly is in China, where last year it bought 14 acres to build a 200,000-square-foot plant at a cost of $22 million.
While solar may be a growth area for the company, it likely won’t see the same meteoric rise as armor sales did, Lew said.
Ceradyne’s main competitors in solar are Morgan Crucible Co. and Cookson Group PLC, both of Britain.
Ceradyne also makes bearings for wind turbines that could see a pick up in sales if the industry overcomes its challenges with financing, Lew said.
Other opportunities include products for oil drilling, aluminum smelters, nuclear power plants and semiconductors.
In all, about 40% of Ceradyne’s sales are for non-military products, leaving the majority of its sales tied to the Pentagon.
An increase in troops for war in Afghanistan or the start of another conflict or terrorist event could add to that, Lew said.
In March, Ceradyne received its first order for its next generation XSAPI vests for $77 million, which was part of a larger five-year deal potentially worth $2.37 billion.
This year it also has received a number of smaller orders for its other vests, including a contract for $8 million last month, $16.4 million in August and $18.7 million in July.
Earlier in the year it bought Diaphorm Technologies LLC, a Salem, N.H., company that makes armor helmets, for $9.5 million in cash and the assumption of $300 million of its liabilities.
And in 2008 it bought North Billerica, Mass.-based SemEquip Inc., which makes equipment used in the production of semiconductors, that it paid up to $125 million for.
