Time to armor up, investors. With troops still in harm's way in Iraq, one of the market's most relevant stocks is set to report yet another strong quarter's worth of earnings. Armor Holdings (NYSE:AH), maker of body and vehicle protection, reports its Q1 2006 numbers tomorrow after the close of trading.
What analysts say:
- Buy, sell, or waffle? Nine analysts follow Armor Holdings, and buy ratings outnumber holds 2-to-1, with nary a sell in sight.
- Revenues. Sales are expected to rocket when Armor Holdings reports tomorrow, with the consensus calling for 24% growth to $454.2 million.
- Earnings. Likewise with profits, which are expected to grow 25% to $1.09 per share.
What management says:
In February, Armor Holdings announced a plan to acquire military-vehicle maker Stewart & Stevenson (NYSE:SVC) for $755 million net of cash. Armor Holdings President Robert Schiller called the acquisition an "opportunity to become a prime contractor within the military's tactical wheeled vehicle fleet" and termed the deal "extremely compelling." He expected the addition of Stewart to Armor's holdings to permit the combined company to improve revenue growth, but he also said the deal will not likely be accretive to earnings until 2007.
What management does:
Judging from what's below, though, I think investors will be more interested in how profitable the Stewart-originated revenues are than in how much they grow. Armor Holdings' margins have been under a lot of pressure over the past 18 months, with the gross margin sliding more than 500 basis points and the operating margin down more than 200, with Armor Holdings attributing most of the reductions to product-mix changes in the Aerospace & Defense Group, as well as lowered prices on its contracts for improving the armor on the military's high-mobility multipurpose wheeled vehicles.
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
29.2 |
27.1 |
26.1 |
25.4 |
24.1 |
23.9 |
|
Op. |
17. |
15.8 |
16.3 |
15.7 |
14.8 |
14.8 |
|
Net |
6.5 |
8.2 |
8.4 |
8.9 |
8 |
8.1 |
One Fool says:
The most recent news of interest out of Armor Holdings was its announcement that it has agreed to toll the statute-of-limitations period on possible civil liability for selling body armor manufactured with defective Zylon fibers. In layman-speak, what that means is that Armor Holdings agreed to give the U.S. Department of Justice extra time to investigate whether Armor Holdings is liable to pay a fine. Had Armor Holdings refused to toll the statute of limitations, the DOJ would have had less time to investigate and, if it failed to sue Armor Holdings by a certain deadline, Armor Holdings would have been off the hook for any potential liability.
On the one hand, this exposes the company to greater risk of being fined at some time in the future; on the other hand, by accommodating the DOJ rather than playing hardball, it may have limited the risk that it will be fined at all. One can hope.
Competitors:
- Caterpillar (NYSE:CAT)
- Ceradyne (NASDAQ:CRDN)
- DaimlerChrysler (NYSE:DCX)
- Halliburton (NYSE:HAL)
- Oshkosh Truck (NYSE:OSK)
Fool contributorRich Smithdoes not own shares of any company named above.
