The way the defense spending process works, companies selling to the military generally receive a blanket order covering multiple years, but the actual spending must be approved by Congress each year. As a result, companies typically report both the blanket order (which allows investors to anticipate the likely future revenue stream) and the follow-on orders (which allows investors to see that the expected revenue will actually materialize.) With large companies like Lockheed Martin (NYSE:LMT), the announcements are seldom sufficiently significant to move the market. However, with smaller companies investors must pay careful attention, as is the case with yesterday’s announcement from Ceradyne (CRDN).
Ceradyne, Inc. Receives $113 Million Ceramic Body Armor Order for U.S. Army
Ceradyne, Inc. received a $113 million delivery order for ESAPI (Enhanced Small Arms Protective Inserts) from the U.S. Army, Aberdeen Proving Ground, Maryland. This new delivery order is scheduled to be shipped beginning April 2007 through early September 2007. This delivery order will be shipped against a larger indefinite delivery/indefinite quantity (ID/IQ) contract announced earlier. The Company records as firm orders only delivery orders, such as the above, that have firm scheduled delivery dates.Dave Reed, Ceradyne President North American Operations, commented: “This delivery order is the largest single ESAPI order ever received by Ceradyne.”
The delivery is the follow-on order from a previously announced contract, so the only incremental information is that the order will actually go through as expected. Hopefully the 5% rise in the share price today is due more to investors appreciating Ceradyne’s attractive valuation than to a misunderstanding over whether this is a new order.
It also serves as a good illustration of PR word-mincing, as this $113 million “largest single ESAPI order ever received by Ceradyne” should not be confused with the $133 million ESBI order they received in December. For the record that, too, was a follow-on order as part of a previously announced contract.