Foolish Forecast: II-VI, Hike!

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Start the countdown, Fools. In just a few short hours, Motley Fool Hidden Gems pick II-VI (NYSE: IIVI) will take the ball and hike it to us. Fourth-quarter and full-year fiscal 2008 earnings are due out tomorrow morning. Here's what to expect:

What analysts say:

• Buy, sell, or waffle? Only three analysts still follow II-VI, which gets a pair of buy ratings and a hold.
• Revenue. On average, they're looking for 21% quarterly sales growth to $86.8 million.
• Earnings. Profits are predicted to rise nearly as fast, up 16% to $0.43 per share.

What management says:
Citing "record bookings and revenues" last quarter, particularly in the company's Military & Materials and Compound Semiconductor businesses, CEO Francis Kramer told us he now has "good visibility for the remainder of the fourth quarter and fiscal year." And what does he see? Pretty much the same numbers that the analysts cribbed from last quarter's report: Sales should come in between $85 million and $88 million, earning profits of somewhere between $0.40 and $0.44 per share.

You can probably take those numbers to the bank. Slightly less reliable are Kramer's predictions of 11% revenue growth and 12% core earnings growth next year. (We'll look for an update on those numbers tomorrow.)

What management does:
Gross margins continue to slide at II-VI, but thanks to the consistent (and, according to Kramer, predictable) revenue growth, economies of scale appear to be working in II-VI's favor. Operating and net margins are both on the rise, putting those of larger rivals like Northrop Grumman (NYSE: NOC) and Raytheon (NYSE: RTN) to shame.

Margins	12/06	3/07	6/07	9/07	12/07	3/08
Gross	42.0%	42.4%	41.7%	41.3%	40.9%	40.6%
Operating	18.6%	18.5%	18.4%	18.3%	18.6%	18.7%
Net	6.3%	7.2%	14.4%	14.6%	20.1%	20.1%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
A few paragraphs above, you'll notice that I referred to "core earnings growth" at II-VI. By that, I mean that growth of 12% from continuing operations, rather than the increase from the "after-tax gain on sale of equity investment of $0.52 per share," will be part of II-VI's full-year results tomorrow.

In addition, if and when II-VI manages to sell off its eV Products subsidiary (as I mentioned last quarter, Accuray (Nasdaq: ARAY), Varian Medical (NYSE: VAR), L-3 (NYSE: LLL), and OSI Systems (Nasdaq: OSIS) are all potential bidders), the eV profits won't add to II-VI's haul, either. Adjust your expectations accordingly.

IV more on II-VI, read:

• II Steps IV-ward, I Step Back
• II(-VI) Legit to Quit
• Color to the Numbers: Top Contrarian Stocks