Call it a case of having your armor and eating it, too. (Mmm! Fiber!)
On Wednesday, Armor Holdings
Why is this significant? Because of the reason Armor Holdings gave for the coming Q3 earnings shortfall: ". Revenue associated with ground vehicle supplemental armor programs for the M1114 Up-Armored HMMWV, as well as certain soldier equipment programs, both . are now expected to ship in the fourth quarter of fiscal 2006 and in fiscal 2007." Paraphrased, Armor Holdings is saying that some of its anticipated Q3 sales have slipped into Q4 2006 and early 2007. As a result, the anticipated profits will still be coming -- just a little behind schedule.
That's a fair explanation, as far as it goes. But notice what else Armor Holdings had to say: "The Company is maintaining its outlook for the fourth quarter." If the expected Q3 body armor and Humvee shipments were pushed into Q4, though, then logically, the firm should have raised its Q4 outlook. And it would have -- but for the fact that two other trends are expected to hurt results in both quarters. Specifically, the firm is selling fewer spare parts than anticipated, while also experiencing higher costs in its attempt to meet 2007 production goals for "certain soldier equipment lines."
I'm assuming that "soldier equipment lines" is corporate-speak for "body armor" -- the phrase isn't used anywhere in the firm's recent 10-K filings, so I'm having to guess at its likely meaning. If that's true, then Armor Holdings' charge to earnings for the "ramp-up costs and manufacturing inefficiencies" may not be an entirely bad thing. Although it would certainly be preferable for Armor Holdings to smoothly fulfill all its orders, I think most investors would rather hear their company has too much demand than too little. Moreover, investors in rivals Ceradyne
In contrast, the slackening demand for spare parts could bode ill not just for Armor Holdings, but for other firms that sell into the military-vehicle market, Cummins
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