FEI Company Earnings Hit a Record as Margins Expand

By Markets Fool.com

FEI Company reported its second-quarter results after the closing bell on Thursday. The microscopy workflow solutions provider delivered record second-quarter earnings as its margins expanded, enabling the company to offset weaker revenue from foreign exchange rates. As a result of this solid showing, the company reiterated its full-year earnings forecast.

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A look at the numbers
Revenue for the second quarter declined by 5.4%, to $224 million; however, revenue would have been flat year over year if it hadn't been for currency fluctuations. Further, revenue was near the top end of FEI Company's guidance range of $216 million to $226 million for the quarter, while also beating the consensus estimate of analysts by about $3 million.

Net income, meanwhile, jumped from $25 million in the year-ago quarter to $37 million this quarter. That resulted in a new quarterly high for earnings per share, which hit $0.89. This was not only well above the $0.59 per share the company earned in last year's second quarter, but well above the high-end of its own guidance range of $0.73 to $0.83 per share, while also trouncing analyst expectations by $0.12 per share.

Driving this strong surge in profitability was the company's vastly improved margins. This occurred as its gross margin hit 50%, while its operating margin reached 20.5%, which hit or exceeded the company's goal for 50% gross margin and 20% operating margin. Both were well above the year-ago quarter when the gross margin was 46.6%, and the operating margin just 13.3%.

FEI Company also ended the quarter with a very sold order backlog of $541 million, which is up $17 million year over year. Driving this gain were strong new order bookings, which came in at $252 million. This resulted in a book-to-bill ratio of 1.12-to-1, which hints at future revenue growth for the company. That's a much better showing than last quarter when the book-to-bill ratio was just 0.98-to-1 times.

A look at outlook
That strong book-to-bill aside, FEI Company doesn't see its revenue growing next quarter, as it's guiding for revenue in the range of $215 million to $225 million. This is largely the result of continued headwinds for foreign currencies, which will negatively impact revenue by 5% over last year's third quarter. Further, the company is also expecting a sequential decline in earnings, as it's guiding for earnings per share to be in a range of $0.70-$0.80.

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The company did reaffirm its full-year forecast that calls for 4%-7% organic revenue growth over 2014. Further, the company still sees earnings per share in a range of $3.40-$3.70 per share for the full year.

Investor takeaway
Overall, FEI Company delivered a good quarter. The company's focus on improving its margins really paid off as it reported record earnings, which beat expectations. While this is the second straight quarter the company beat its own earnings guidance, it isn't yet raising its full-year guidance. Either the company sees second-half weakness, or it's just being conservative.

The article FEI Company Earnings Hit a Record as Margins Expand originally appeared on Fool.com.

Matt DiLallo owns shares of FEI. The Motley Fool recommends FEI. 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.