Wow. Now that was unpleasant.

Belying a wave of good news on the revived prospects for its body armor business, ceramics specialist Ceradyne (NASDAQ:CRDN) stunned the market with a third-quarter report that underperformed expectations in just about every manner imaginable.

  • Sales of $167.7 million dropped 12% in comparison to last year's Q3, and fell 8% shy of analyst estimates.
  • Profits took a 37% tumble, landing with a whomp at $0.73 per share, fully one-third less than expected.

Even Ceradyne's caveat that profits would have looked better but for a pair of one-time charges failed to provide comfort. Adding back the $0.31 per share that those charges subtracted would only get Ceradyne back up to a buck, four -- still short of estimates. And while Ceradyne didn't highlight the fact, by repurchasing some of its shares over the past year, it actually boosted its profits per share -- meaning things would have looked even uglier without the buybacks.

Bad news, worse news
What else could have gone wrong? Well, let's see. New bookings only amounted to $119.4 million -- far less than needed to replace those few sales that Ceradyne did make in Q3. This suggests further slowing of sales going forward -- the exact opposite of what one would expect from a shop that just signed a $2.4 billion armor supply deal with the military. And backlog is basically flat year over year, which again suggests little growth in sight.

And even the good news is bad
Furthermore, as CEO Joel Moskowitz pointed out, the Army ordered Ceradyne to stop work on some of its deliveries, probably in response to a BAE Systems protest of awards issued to Ceradyne. Moskowitz further warned that he does not expect the new XSAPI/ESAPI contract to reach its $2.4 billion ceiling because he believes the Army will primarily be ordering only XSAPI armor, and not the ESAPI component of the contract.

And the good news?
The good news I had hoped to see as recently as yesterday -- that Ceradyne is part of one of the multiple teams bidding on the Army's JLTV program -- has yet to arrive as scheduled. Everyone from General Dynamics (NYSE:GD) to Force Protection (NASDAQ:FRPT) to Lockheed Martin (NYSE:LMT) to Boeing (NYSE:BA) is bidding to build this next-gen Humvee. But the Army still hasn't announced the winners, and even when they do, there's no guarantee Ceradyne will be among them.

So where's that leave us?
Depressed, but also intrigued. As bad as the news was, I have a sneaking suspicion that Mr. Market overreacted to it. Learn more about Ceradyne in:

Fool contributor Rich Smith owns shares of Boeing, Ceradyne, and Force Protection. The Motley Fool has a disclosure policy