Ceradyne, Inc. (CRDN) said Monday that it has received an Indefinite Delivery/Indefinite Quantity, or ID/IQ, contract worth about $2.37 billion for its XSAPI and ESAPI personal ceramic armor plates from the U.S. Army. Ceradyne, a manufacturer of technical ceramic products and components, also received the first delivery order for First Article Testing, or FAT, valued at $943 thousand. The initial FAT order for both XSAPI and ESAPI armor plates is scheduled for shipment by November 2008.
The Costa Mesa, California-based company, in mid-September, had cut the lower end of its fiscal 2008 earnings and sales outlook due to the expected delay in the multi-year contract from the U.S. Army. While announcing the cut, the company had said that it was aware of a protest filed with the Government Accounting Office by a bidder on the contract for XSAPI/ESAPI, and that the award would be delayed resulting in lower shipments, unless the Army overrides the protest on urgent and compelling grounds.
Over the five-year life of the ID/IQ contract, the U.S. Army RDECOM, Aberdeen Proving Grounds, Maryland can order one or both types of front and back armor plates. The company noted that the contract provides for a minimum of 500 plates to a maximum of 240 thousand plates per year.
Initially, Ceradyne will only book Delivery Order 0001 for $943 thousand for FAT plates, in line with its practice to record as backlog only the portion of the ID/IQ contracts which has firm delivery orders issued against the total contract. However, following the evaluation of the initial FAT plates, the company anticipates the issue of a series of volume production delivery orders under the total $2.37 billion ID/IQ contract. The company noted that it believes the fielding of XSAPI is urgent as they are especially required in the field to defeat next generation armor piercing projectiles.
Commenting on the contract, David Reed, Ceradyne's President of North American Operations, said, "This ID/IQ contract is by far the largest body armor contract Ceradyne has ever received. We are very pleased to receive this contract and believe that the government's decision was based in good part on the performance of our actual XSAPI and ESAPI plates which were submitted in response to the Army's original Request for Proposal, as well as our past performance in body armor procurements relating to both delivery and quality."
The company said it could meet any quantity demand under the contract, including the potential maximum quantities, with its investment in Lexington, Kentucky and Irvine, California manufacturing facilities.
Reflecting the anticipated lower shipments due to contract delay, Ceradyne, on September 10, had revised its fiscal 2008 earnings per share outlook to a range of $4.25 - $4.80 from $4.70 - $4.80 per share expected on July 25. Sales are now expected to be between $710 million and $750 million, in comparison with its previous forecast range of $740 million - $750 million.
On average, eight analysts polled by First Call/Thomson Financial expect the company to post earnings of $4.56 per share on sales of $735.99 million for fiscal 2008.
Ceradyne had then noted that the outlook revision assumes that the XSAPI award would be made to the company in late 2008 with only one month of XSAPI shipments in the fourth quarter. Also, the earnings forecast exclude the effect of the estimated $10 million pre-tax charge to be incurred in the third quarter related to the SemEquip, Inc. acquisition.
In a different development in late September, Ceradyne received a $39.2 million order from the U.S Army for the supply of Small Arms Protective Inserts or SAPI lightweight ceramic body armor. Shipment of the product, which is a Foreign Military Sales requirement, is expected to commence by the end of the fourth quarter, and is expected to complete before May 2009.
CRDN closed Friday's regular trading session at $32.96, down $0.77, on a volume of 741 thousand shares. In the past 52 weeks, shares have been trading in a broad range of $27.77-$78.92.
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