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Filtration company Polypore International (NYSE: PPO  ) surprised the Street with an astounding 91% jump in its second-quarter EPS, with strong end product demand driving the top line. However, in spite of the robust numbers, its shares took a beating, plummeting 10% as the company laid out its expansion plans.

The numbers
Revenues for the quarter jumped 31% from the year-ago period to $196.4 million, with the larg Energy Storage segment's sales climbing by 38%. The primary driving factor has been the growing demand for consumer electronics and electric-drive vehicles (EDVs). Polypore makes membranes for lithium batteries used in these products.

The Separations segment, which makes membranes catering to the health-care sector, saw sales climb by 14% from the year-ago quarter. Peer Valence Technology (Nasdaq: VLNC  ) also reported a more than twofold jump in its fiscal 2012 first-quarter revenues, as demand for medical products increased overall.

Strong revenue growth helped Polypore's operating margin improve from 21.6% to 27% year-on-year. As a result, the company's net income surged from $15.9 million last year to $29.5 million.

From a balance-sheet perspective, Polypore's total debt-to-equity ratio stands at 158% in the latest quarter. Although that might seem high, the ratio has improved over the past few quarters and it down from 230% in the second quarter last year. Though the primary factor has been the public offering of additional stock, the company's long-term debt has also come down from $758 million to $713 million year-on-year.

Along with debt reduction, Polypore's interest coverage ratio has improved from 2.9 to 6.3 year-on-year, which suggests an improving capability to service debt obligations.

Polypore is not a dividend-paying company. It has, however, been spending on expansions. The company has a capital expenditure of $200 million planned for fiscal 2011.

Polypore's strength lies in the wide range of items its products find use in -- tablets, smartphones, EDVs and more. The growth for those products translates into higher demand for what Polypore makes. The company is also strengthening its footing in the lucrative emerging markets.  

Because of additional capacity investments, the Charlotte-based company expects extra costs in the forthcoming quarters, and its ability to exceed its current performance is limited until the additional capacity becomes functional.

In the meantime, sales for battery makers have been picking up recently. Companies like Exide Technologies (Nasdaq: XIDE  ) and Enersys (NYSE: ENS  ) use Polypore's products for their batteries. Exide's fiscal 2012 first-quarter sales grew 16%, while Enersys' sales in its fourth quarter rose by 22%. Higher battery sales mean more business for Polypore.  

Most automakers also appear optimistic about EDVs, prompting Polypore to expand its capacity for lithium-battery separators for the vehicles, spending around $105 million. This is its fifth EDV-targeted expansion plan since mid-2009.

The Foolish bottom line
The wait for additional capacity to become available, as well as the money spent on it, might sound like a dampener. But given the company's line of business, it may be a good idea to keep watching the stock for the long run.

To stay up to speed on Polypore, add it to My Watchlist.

Fool contributor Neha Chamaria owns no shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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