You'll have to forgive me. When I wrote aboutCeradyne
Body armor: This isn't the only product among Ceradyne's vast portfolio, but these days, it is the bread and butter. We've got some amazing sales numbers already. Let's hope we get a glimpse of the prospect for more orders from that three-year, $461 million, Indefinite Delivery/Indefinite Quantity order the firm got back in August.
Operating efficiencies: Ceradyne has invested heavily in new plants over the past few years, with good results to show for it so far. As they continue to ramp up production in the new facilities, look for evidence that they're getting extra leverage from the plants in the form of cost savings. In the last conference call, we heard that management thought it might be possible to increase production per SAPI run by another 50%. Look for progress toward that target. Why? It should not only make for better margins but also ensure that Cerdayne gets larger chunks of the military's body-armor orders.
Vehicle armor: This is the most intriguing wild card for Cerdayne. The Wixom, Mich. facility is officially online, and a recent Navy order suggests that there are even more opportunities here than some of us imagined. Look for evidence that the firm is making further inroads with the military, and not just for the present day but also for the future. A recent New York Times article described the military's initiative to completely redesign its ground fleet with an eye to durability, speed, and efficiency. I want to see Ceradyne working on making its lightweight armor an integral part of every new vehicle rather than just providing retrofit solutions a la Armor Holdings'
Stuff not to sweat
Margins: Don't get too worked up about falling margins, should they appear. Remember, after the ESK acquisition, this is a much different company than it was last year. That's not to say that we shouldn't worry at all, but keep in mind, a German workforce, German taxes, and a completely different product mix are guaranteed to shake up gross, operating, and net margins. Note the differences and adjust your expectations accordingly; just don't be fooled into freaking out.
Free cash flow: Much as I hate to admit it, sometimes an investment isn't about the free cash flow. At least not for a while. Although my colleague Rich Smith is right to point out the obvious lack these days, it's not something I'm worrying about right now. Ceradyne is a company that's supposed to be putting present profits toward building a stronger future, and that's going to take some cash up front.
That's the same reason I also didn't spend much time on EPS for the quarter. Frankly, unless there's a drastic downward variation from the full year's $1.07-$1.10 range that I calculated from management numbers a while back, I don't really care what the result is. Shocking? I don't think so. As a Ceradyne shareholder, my eyes are further down the road than this quarter or this year, and I think other investors should put their focus there as well.
For related Foolishness:
- Read about news you should lose.
- There are other Fools who like Ceradyne, too, kinda sorta.
- See how Ceradyne is bulking up.
- Can you benefit from the Jumbotron? Sure, if you turn it off.
Seth Jayson is wondering whether Ceradyne can make him some kind of lightweight armor for his commuting bicycle. At the time of publication, he had shares of Ceradyne but no position in any other firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.