Hello. My name is Rich, and I'm a Ceradyne (NASDAQ:CRDN) shareholder. It's been five days since I last trusted management ...
Last week, Ceradyne investors saw their stock sell off 20% on a day of no apparent news. The shares have continued sliding, with management remaining mum -- not a press release, not an SEC filing. The only clue to why shares are tumbling comes from a pair of obscure announcements concerning a "Security and Defense Conference-At-Your-Desk" that was held Thursday by Arkansas investment banker Stephens Inc.
What's a "conference at your desk?"
It's a bit like a "party in your mouth," only less fun. Fool staffer TMFBreakerWade (Wade Michels) tuned into said conference and gave us the lowdown. (Read all about it by taking a free 30-day trial subscription to Motley Fool Rule Breakers.)
- You know how Suntech (NYSE:STP), MEMC Electronic (NYSE:WFR), SunPower (NASDAQ:SPWRA), and basically everybody who's anybody in solar have been wrecked this year? Well, the damage is spreading. Pertinently, Vesuvius Crucible Co., a subsidiary of London's Cookson Group and one of Ceradyne's primary competitors, is having trouble selling ceramic crucibles (used to bake the silicon that goes into solar power cells) in China. Vesuvius is cutting prices to move inventory; Ceradyne decided to cut prices in tandem to preserve its 30% share of this market.
- Lower prices mean lower revenue, and Ceradyne walked back guidance to about $600 million for the year.
- Previous expectations of a per-share profit of $3.00-$3.25 have proven a pipe dream, and we're now looking for something more like $2.30.
Now, I could go into detail here about how $0.50 of the profits reduction owes to the "solar issue," another $0.15 is from a delay in the Pentagon ordering XSAPI body armor, $0.10 more from general worldwide economic malaise, and a final dime from one of the most arcane tax accounting issues it's ever been my displeasure to read through. But I want to close with a few words to Ceradyne management.
Shame on you
Shame, in particular, on CEO Joel Moskowitz, for prefacing his conference call with the following statement: "I thought it would be most helpful to Stephens and anybody calling in if we treated this as a webcast full disclosure presentation so we could ... meet the requirements of Reg FD." (Regulation Fair Disclosure requires the release of important information to all shareholders simultaneously.)
If I might be so bold as to remind Mr. Moskowitz: He may have founded the company, but ever since he took it public, the shareholders have owned it. Not some fancy-pants investment banker named "Stephens." Not just those shareholders who were able to leave work early enough to catch the conference call, the contents of which were known to few beforehand. But all of us.
There's a difference, you see, between "treating" an obscure webcast as if it were full disclosure, and honoring the spirit of Fool disclosure that's inherent in Reg FD. Reducing guidance without so much as issuing a press release is something a company the size of Ceradyne should know better than.
A time for redemption
The saddest part of all this is that it didn't have to happen. Ceradyne could have realized its mistake and implemented damage control by following in General Electric's (NYSE:GE) footsteps, for example. Just last week, GE CEO Jeff Immelt held a conference on Wall Street, explaining the outlook for his company's industrial operations. No sooner had he spoken, then out came a detailed press release telling everyone who might be interested exactly what he had told the bankers.
Or for an even better example of shareholder friendly management, Ceradyne could have imitated peer manufacturer Corning (NYSE:GLW). Much like Ceradyne, Corning is going through a rough patch right now. (And how!) Yet no matter how bad things get, Corning makes a point of issuing a press release before a conference happens, telling investors what its execs plan to tell everybody else at said conference. That's not just fair disclosure, folks. It's bending over backward to protect the interests of the little guy.
Ceradyne shareholders deserve no less.
