Foolish Forecast: Can Ceradyne Get It Together?

After back-to-back earnings misses, can high-tech potter Ceradyne (Nasdaq: CRDN) show that it's gotten its act together when it reports earnings tomorrow? Or is its previous streak of five years' continuous outperformance smashed beyond repair?

What analysts say:

• Buy, sell, or waffle? The baker's dozen of analysts following Ceradyne give it five buy ratings and eight holds.
• Revenues. On average, they're looking for sales to slip 2% to $184.1 million.
• Earnings. And they expect profits to trip and fall by 18% to $1.13 per share.

What management says:
Several recent 8-k filings point to a resurgence in Ceradyne's fortunes. For example, in March and April, the company reported $82.5 million in orders for ceramic plates used in body armor. And in early March, management confirmed that its stock had fallen so low that it was initiating a $100 million repurchase agreement.

What management does:
Even though profitability has suffered of late, Ceradyne continues to boast margins better than those of other high-tech ceramics companies. Superprofitable glass-and-ceramics maker Corning (NYSE: GLW) lags Ceradyne by about eight percentage points of operating margin, and Kyocera (NYSE: KYO) is less than half as profitable as Ceradyne.

Margins	9/06	12/06	3/07	6/07	9/07	12/07
Gross	38.5%	39.4%	39.7%	40.3%	40.7%	40.4%
Operating	27.7%	29.1%	29.6%	30.4%	30.0%	29.2%
Net	17.8%	19.4%	19.8%	20.5%	19.7%	19.1%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Falling sales and shrinking margins aren't exactly what investors look for in a growth stock. The one piles on top of the other to yield profits that fall much more quickly than sales slow. And true to form, Ceradyne predicts that this year's sales may fall by as much as 6% -- while profits could drop twice as rapidly to yield as little as $4.55 per share by year's end.

What could improve these forecasts? Well, the company's BULL MRAP is jostling with armored-transport offerings from General Dynamics (NYSE: GD), Force Protection (Nasdaq: FRPT), BAE, and Navistar for military contracts. Ceradyne says a win here could add as much as $0.50 per share to its profits this year. And we're continuing to monitor sales of the company's newer ceramic products, from diesel engine parts to photovoltaic silicon crucibles, from nuclear waste containers to new products used in smelting bauxite -- the raw material that metals companies such as Alcoa (NYSE: AA) turn into aluminum.

I haven't seen a whole lot of significant sales news on these new offerings yet, however. Let's see whether we get some tomorrow.

What did we expect out of Ceradyne last quarter, and what did we get? Find out in:

• Ceradyn-o-Mited
• Foolish Forecast: Ceradyne's Slip Is Showing