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Wednesday, October 04, 2006

Armor Holdings Guidance Cut Leaves Ceradyne Unscathed

By William Trent, CFA of Stock Market Beat

Ceradyne (CRDN) is not falling alongside its fellow armor manufacturer Armor Holdings (AH) as the factors leading to Armor’s reduction in earnings guidance appear to be company-specific.
Armor, which makes body armor and combat vehicles, now expects earnings of between 55 cents and 65 cents per share, down sharply from its previous forecast of 75 cents to 80 cents per share.

“The revised outlook primarily reflects the timing of revenue associated with ground vehicle supplemental armor programs for the M1114 Up-Armored HMMWV,” as well as other soldier equipment programs, the company said in a statement. Armor Holdings now expects to ship the products in the fourth quarter and next year.

The contractor also cut its full-year forecast to a range of $3.55 to $3.65 per share from previous guidance of $3.75 to $3.85 per share to reflect the lower third-quarter outlook.
The fact that Armor is down more than 10% on an apparently minor and supposedly temporary reduction to guidance is due largely to the fact that the “timing of revenue” argument appears suspect. If it were really just a timing issue, wouldn’t it be made up in the fourth quarter (thus rendering the full-year guidance reduction unnecessary?)

Until that gets ironed out, possibly on the earnings conference call, investors are likely to shy away from Armor Holdings. Since Ceradyne makes body armor rather than vehicle armor it is not falling in sympathy.

Disclosure: The author owns shares of Ceradyne and is short an equal number of Ceradyne call options (net position neutral)

The author may hold a position in the securities discussed. A current list of the author's holdings is available here.

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