Photonics Lift II-VI's Sales, Earnings

By Markets Fool.com

Lasers have become increasingly popular, and II-VI (NASDAQ: IIVI) has used its technology to serve industrial customers needing laser equipment and telecom customers looking to enhance their optical communications capabilities. Coming into Tuesday's fiscal first-quarter report, however, II-VI investors weren't certain whether the company would be able to produce bottom-line growth despite high expectations for sales gains. II-VI weighed in with much stronger earnings than most were expecting to see, yet despite those results, the stock didn't react the way you'd think. Let's take a closer look at how II-VI did and how it sees things playing out in the future.

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Image source: II-VI.

II-VI communicates its optical success

II-VI's fiscal first-quarter results were exceedingly strong. Sales of $221.5 million were up 17% from year-ago levels, slightly exceeding the consensus forecast among investors following the stock. On the bottom line, GAAP net income fell 5% to $16.3 million, but after accounting for various extraordinary items, adjusted earnings of $0.35 per share were $0.08 higher than what most investors had expected.

Looking more closely at II-VI's numbers, bookings for the quarter were even stronger than its other figures. Overall, bookings jumped 31% to $244.3 million, with most of those gains coming from the photonics segment.

Indeed, looking at II-VI's different businesses, photonics was the standout performer. Revenue for the segment jumped by a third, and operating income more than doubled from year-earlier levels. The remainder of II-VI's segments had more mixed results, with the laser solutions business posting 11% gains in revenue, but seeing operating income sink by nearly half due to research and development expenses. After adjusting for the R&D charges, adjusted operating income gains of 17% were more impressive. The small performance-products segment also saw modest sales growth of just 2%, and operating income sagged by 6% year over year.

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CEO Chuck Mattera highlighted a strong start to the new fiscal year. "Component sales into the optical communications market led the growth in margins, and our industrial laser business remained steady," Mattera said. In addition, the CEO pointed to acquisitions in helping to produce valuable growth for II-VI.

Can II-VI keep up the pace?

II-VI is extremely excited about its future growth prospects. In Mattera's words, "We have made good progress in our investment programs to scale our technology platforms to address fast-growing, emerging markets such as 3D sensing, power electronics, and data center interconnects." The more applications II-VI is able to focus on, the greater the prospects for long-term growth for the company.

For the most part, II-VI's outlook seemed reasonably upbeat. Guidance includes sales figures expected to be between $220 million and $230 million, which fits well with the $221 million consensus forecast among those following the stock. Similarly, with most investors expecting $0.23 per share in earnings, II-VI's range of $0.24 to $0.29 per share would be favorable -- especially as it incorporates additional investment in research and development of $0.10 per share.

Investors were initially pleased with the upbeat results that II-VI issued, sending the stock higher when the market opened following the announcement. Yet by midday, the stock had given up all of those gains and then some, falling more than 4%. Even with the lackluster reception that shares of II-VI have seen today from investors analyzing the earnings report, the laser maker appears to have a strong grip on some promising areas for future expansion. If II-VI can make the most of the opportunities it has to grow and broaden its business, then it has plenty of avenues for strong future performance.

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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.