Turns out I was gobbling all those antacids for nothing. As I've remarked in the past, Ceradyne (NASDAQ:CRDN) provides a pretty wild ride, especially during the conference call, when 15% swings in its stock price are not unusual.
Today, the stock barely moved, which seems odd given what Ceradyne reported. Earnings per share jumped 275%, and total net earnings soared 311% to $24.6 million, all on a 95% revenue increase.
That sounds great, and it is, but keep in mind that last year's first quarter was stunted to a large degree because the military had requested that its armor plate order be moved up to a higher standard -- pushing the associated revenues further into the year. Last year, that meant lower margins as well, as the lower revenues weren't able to cover fixed costs as well as they could when revenues were pouring in.
You can see the degree to which Ceradyne's increasing efficiency -- largely due to lean operations at its new Kentucky plant -- has juiced the bottom line by looking at the margin gains this quarter. Net margins climbed 9.5% to 18%.
If that wasn't enough, CEO Joel Moskowitz also raised 2006 guidance. Back in February, Ceradyne believed sales would come in between $535 and $565 million, with EPS between $3 and $3.20. This morning, those ranges were lifted to $590 to $610 million and $3.80 to $4, respectively.
Of course, those who follow the company know that investors' tummyache over the future of body armor is really holding back shares. Management addressed this point today, predicting a strong market through 2007, and I believe that things will work out for even longer than that. Ceradyne is already developing next-generation armor technology, which tends to cascade from elite troops to the masses. In the plate biz, Ceradyne competes with Armor Holdings (NYSE:AH), but the company also continues efforts to compete more on Armor Holdings' wheeled turf -- or possibly even cooperate. Next-generation vehicle armor systems are in the works via joint ventures with as-yet unnamed OEM partners. (GM (NYSE:GM), Ford (NYSE:F), and DaimlerChrysler (NYSE:DCX) all play in this market, among other firms.) There's no reason to expect much from this effort in the next couple of years, but if things work out, it could be a huge boost down the road.
Ceradyne also continues to seek ways to cut costs and expand its product offerings in industrial and technology industries. Ceradyne expects to have a plant in China by the end of the year, and a plant in Canada producing a new product for aluminum manufacturing. Crucible production for the solar energy biz is also up against a wall, so Ceradyne is looking for foreign expansion there, too.
These shares aren't cheap, and yes, the company relies heavily on military contracts for the next couple of years. But given management's skillful handling of the recent boom, I'm confident Ceradyne is also making the right moves for the future. I'll continue to hang onto my shares, thanks.
See Ceradyne's latest quarter by the numbers.
Seth Jayson usually knows enough to let his winners run. At the time of publication, he had shares of Ceradyne, but no positions in any other company mentioned. View his stock holdings and Fool profile here. Fool rules are here.
