Full ceramic jacket
Joel Moskowitz, founder and chief executive of Ceradyne Inc., has filled his office with such corporate mementos as an original $1.25 stock certificate and the gold scissors that cut the ribbons to a new plant in Kentucky.
But a framed sampler embroidered by his wife hangs most prominently, a humbling reminder of the days when the Costa Mesa-based company was losing money and struggling to sell the ceramic materials it made.
It simply says, “Happiness is positive cash flow.”
These days, with Pentagon contracts having helped turn things around, Moskowitz is happy indeed.
The firm he founded in 1967 with $5,000 of his wife’s savings reported earnings Monday, exceeding analysts’ estimates for the 33rd time in 35 quarters.
Revenue for 2006 rose to $662.9 million, an 80% boost from a year earlier, with net income jumping 175% to $128.4 million, or $4.69 a share.
Last fall Ceradyne opened a manufacturing plant in Irvine, its third new factory in three years. There, 900 employees churn out nearly 100,000 ceramic armor plates each month for U.S. troops in Iraq and Afghanistan.
The company is setting its sights on generating $1 billion a year in revenue by 2010. That’s up from barely $45 million in 2000.
“It just keeps going through the sky,” said Peter Arment, who covers the defense industry for JSA Research Inc. in Newport, R.I. He said he was unaware of another company in the industry that had grown so fast so quickly, virtually all of it without acquisitions.
The dramatic growth in the last six years is in stark contrast to the 1990s, when Ceradyne struggled to hawk ceramic-based products as varied as brackets for orthodontic braces and components for diesel engines. The company lost money for seven straight years and had to sell two of its businesses to pay down debt.
“It was tough, but we never thought about giving up,” Moskowitz said.
Then, in 2001, the company hit a bonanza as the U.S. geared up for military operations in the aftermath of the terrorist attacks on the World Trade Center and the Pentagon. The specialized, high-tech ceramics that Ceradyne had been developing for decades could be used to make lightweight bullet-proof armor for U.S. troops.
Army researchers found that the plates, which are fitted inside a vest, could withstand bullets fired from a machine gun at point-blank range.
The latest protective vest contains two large plates -- one in front of the torso and the other covering the back -- and two smaller plates along the sides of the body.
The plates, which are much lighter than the steel-based versions that troops had been wearing, cost about $600 for a set.
Ceradyne does not manufacture the vests into which the plates are inserted.
The company’s first big contract for the ceramic armor plates came in October 2001 -- $12.5 million for 28,000 units. Since then, Ceradyne has received several follow-up orders, including a $113-million contract last month, for a total of more than $700 million.
To meet the surging Pentagon demand, Ceradyne opened a plant in Lexington, Ky., to make body plates. It then opened a factory in Wixom, Mich., to manufacture armor plating for military vehicles.
The company still found itself unable to keep up with demand, so it opened the Irvine plant in November.
Moskowitz, who will turn 68 in May, described Ceradyne’s work for the military as one of the most rewarding experiences of his life. There are no firm statistics, but the Pentagon believes that the vests have saved hundreds of lives. In one incident, a U.S. soldier was said to be sitting on one of the vests when the Humvee he was driving was hit by a roadside bomb. The soldier survived.
“You get teary-eyed reading these letters” from soldiers and Marines, Moskowitz said. “It’s a phenomenal feeling.”
He and Ceradyne have come a long way in 40 years. After getting a degree in engineering from Alfred University in New York, which has conducted extensive research on ceramics, Moskowitz moved to Southern California in the early 1960s and began making specialized materials for research into lasers.
Ceramic products are created by heating nonmetallic substances, sometimes to thousands of degrees, and can range in complexity from basic clay pottery to the heat-shielding tiles on the space shuttles.
Supported mainly by federal research funds, Ceradyne developed ceramic products for mostly military applications, such as components for nuclear warheads. In the 1980s it started making protective seats for the crews of military helicopters. Ceradyne’s ceramic plates eventually were used in personal body armor for special operations forces.
For much of the 1990s the company struggled to find its place in the commercial marketplace.
At the Irvine plant, an odd fixture in a city better known for its residential neighborhoods, Ceradyne employees work 24 hours a day, seven days a week, trying to keep up with urgent Pentagon orders.
“It’s been like riding a rocket ship,” said George Taylor, the production manager in Irvine. He has seen the company grow to 2,400 employees from 300 when he joined it four years ago. “It’s just been amazing.”
But some analysts have begun to warn investors that the rocket ride may be over. The company has produced about 700,000 plates and demand could diminish if the U.S. were to start withdrawing troops from Iraq. Sales of armor plating represent about 75% of Ceradyne’s revenue.
There are “enough issues out there” to give investors pause, said analyst Arment, who has a “sell” recommendation. “I think you’re looking at a peak revenue environment.”
Ceradyne shares have skyrocketed from about $10 a share in 2001 to a record $63 last year. But the stock has retreated to about $55 as investors appear to share Arment’s concerns.
The jitters continued Monday even after Ceradyne boosted its 2007 revenue forecast. After rising nearly $3 early in the day, Ceradyne shares sank $3.55, or 6%, to close at $55.10. A conference call with analysts apparently disappointed some investors, who were expecting better results from the company’s efforts to expand its vehicle armor business.
“We’re not going to do that every year,” Moskowitz said last week in projecting the 80% increase in revenue last year from 2005. “But we are still going to grow in double digits.” For 2007, he said, sales could rise 12% to about $740 million.
Moskowitz acknowledges that the growth rate in military-related business is likely to moderate, and he expects defense work to eventually represent about half of revenue as the company diversifies. Last fall, Ceradyne opened a factory in Tianjin, China, to make ceramic molds used in the manufacturing of solar panels.
Ever the salesman, Moskowitz interrupted an interview to show off a new product that he says could be the next big thing for the company.
“You want to see something really cool?” he asked, as he reached across a cluttered desk for the company’s latest invention -- a marble-size ball and a socket, both made of ceramics, that would be used in hip replacement surgery.
“This will last forever,” said Moskowitz as he pulled out an X-ray and told about having hip replacement surgery with older, different materials that wear out after about 15 years.
Moskowitz said he would be willing to be one of the first to try an artificial hip joint made by Ceradyne, which he hopes will be ready for market in about two years.
But Moskowitz still draws a line over which he will not step -- he’s not willing to strap on Ceradyne’s armor plates and be shot at.
