II-VI Earnings Heat Up as Laser Demand Stays Strong

By Markets Fool.com


Image: II-VI.

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Waiting for a struggling company to turn the corner can be excruciating for shareholders, and investors in laser manufacturer II-VI have waited for years for the company to find a better way forward. Coming into its fiscal-third-quarter financial report Tuesday morning, investors had high hopes that II-VI had finally started to turn its efforts into stronger performance, and the earnings results confirm II-VI is back on a growth trajectory. Let's look at how II-VI fared during the first part of 2015, as well as whether shareholders have cause to celebrate the latest numbers from the laser maker.

II-VI posts solid growth
II-VI continued to show that it is bouncing back from some of its tougher times in the past. Revenue rose more than 5% to $182.7 million, almost doubling the growth rate that most of those following the stock had expected. Earnings once again exploded higher, with a 70% rise in net income to $14.5 million. That equated to earnings of $0.23 per share, beating the consensus estimate by 10%.

Digging further into the numbers, II-VI had big success on multiple fronts. Margins continued to improve, with operating margin nearly doubling from the year-ago quarterand gross margin climbing by 4.5 percentage points. Bookings jumped to a record $195.7 million, and the resulting book-to-bill ratio of 1.07 pointed to solid future prospects for II-VI's business.

Within II-VI's three major segments, good performance from laser solutions and photonics were essential drivers of improved performance. On a revenue basis, laser solutions led the way with a 16% gain, as operating income more than tripled from year-ago levels. Photonics collected the biggest rise in bookings, up 14% even as the segment still produces relatively little operating profit compared to II-VI's other business units. Once again, the performance products business was the only division to suffer falling sales and bookings, and operating income fell by a third.

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Source: II-VI.

CEO Francis Kramer put the quarter in perspective, seeing it as an ongoing milestone toward longer-term success. "We continued to accomplish our goals to put the Laser Solutions and Photonics acquisition on a solid foundation," Kramer said in a prepared statement, and "the Laser Enterprise wafer fab is operating on a more consistent basis." Kramer also touted the fact that growth in revenue came entirely organically despite pressure from negative currency impacts.

Can II-VI remain laser-focused on growth?
II-VI expects to keep growing, albeit at a slower pace. In its fiscal fourth-quarter guidance, II-VI said it anticipates sales between $185 million and $193 million, with the midpoint of that range representing growth of less than 1% but matching most investors' expectation. Earnings guidance for $0.20 to $0.24 per share compares somewhat unfavorably with the $0.23 per share shareholders anticipate, but II-VI has a good recent track record of topping its conservative guidance.

II-VI hasn't stinted on laying the groundwork for new innovations. The company boosted spending on research and development internally by more than 6%, to $12.9 million, during the quarter, recognizing the importance of keeping R&D in-house to come up with technological advances in an increasingly important field.

Investors reacted favorably to the news from II-VI, as shares were up 3% as of 11:51 a.m. Even though the company still has far to go to claw back the ground it has lost in recent years, II-VI's results are a good indicator of the company's significant potential for future growth.

The article II-VI Earnings Heat Up as Laser Demand Stays Strong originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends II-VI. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.