According to the company's press release, the Department of Defense moved an order for BA-5390 batteries out of the second quarter. As a result, Ultralife lowered its quarterly and yearly guidance for revenue. It quantified the revenue loss at $7 million for the quarter and said yearly sales will be flat to up 10% at most.
In addition, the company said it would generate a "modest" amount of operating income instead of the $2.5 million it had expected. Certainly, modest means less than $2.5 million, but how much less still needs to be figured out.
Management also warned that the timing of future orders for BA-5390 batteries is uncertain. Right now, the government has to make "urgency buy" purchase orders, which the company says take longer to execute. Disrupting a production schedule to fit things in is never easy. And to make it even harder, the qualification process for this product took longer than expected. The military has strict standards for everything, and working to meet those while pushing production is not the best situation.
As you might expect, the market is not happy with Ultralife's stock right now. After falling almost 17% this morning, the stock recovered a bit and was trading about 4% lower at $15 per share.
Sales and gross margins have been declining since the second quarter of 2004. That can drain the power out of a small company like Ultralife. Lower gross margins across essentially fixed selling, general, and administrative costs means less operating income. Fortunately, the company has very little interest expense -- another fixed cost -- because of its low debt levels.
Even with this hiccup, the company's prospects still seem good. First, it is a leader in lithium battery technology and is working to differentiate itself based on technology. Second, it still has the supply contracts because the government likes its technology. And it has a small but growing commercial business that supplies specialty batteries to automotive companies like Volvo
The market doesn't like uncertainty, and the press release highlighted a bunch more of that. While a pullback can be a time to buy, it can also be a time for pause. And pause seems more prudent than purchase at the moment.
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