Laser maker and Motley Fool Hidden Gems recommendation II-VI (NASDAQ:IIVI) reports its fiscal Q2 2007 earnings results tomorrow. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Just three analysts follow II-VI (pronounced "two-six"), and all three rate the stock a buy.
  • Revenues. On average, they're looking for 23% sales growth tomorrow, to $63.8 million.
  • Earnings. Profits are predicted to leap 65% to $0.28 per share.

What management says:
II-VI's big news last quarter was a $17 million contract to provide ultra-violet (UV) filters to a major military customer. Although management didn't say when, precisely, these revenues will arrive, it gave a hint by placing all $17 million of the order in its "bookings" for the fiscal second quarter. Because II-VI defines bookings as orders that are expected to be filled within one year, we can expect to see all $17 million of this revenue show up before 2007 ends. News of the sale comes on top of a fiscal first quarter in which II-VI achieved "record bookings."

What management does:
Near the top line of its income statement, things aren't looking particularly good -- or bad. Sales growth of 13% over the last six months has been exceeded slightly by a 14% rise in the cost of goods sold, depressing the firm's gross margins. Fortunately, II-VI has held the line on operating costs, keeping selling, general, and administrative expenses to an 8% rise during the period and boosting its operating margin in consequence. As for the net -- pay it no mind. The firm took a hefty $17.6 million non-cash charge goodwill in the June quarter, and that's going to weigh on the rolling net results for another six months.

Margins %

6/05

9/05

12/05

3/06

6/06

9/06

Gross

42.5

41.8

40.4

40.9

40.6

40.8

Op.

17.8

17.3

16.4

17.4

17.6

18.1

Net

12.0

11.7

11.8

12.2

4.6

4.8
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:
Speaking of margins, Hidden Gems co-analyst Tom Gardner spoke to II-VI's margins in his biannual roundup of the progress of all his recommendations back in November. He noted that the gross margin contraction owes to "price increases in selenium, but that inventory is moving through," and he expects the "gross margins to tick up" over time.

As for the rest of what Tom said about II-VI, you can read all -- for free -- just by taking a free trial subscription to Hidden Gems.

Competitors:

  • DRS Technologies (NYSE:DRS)
  • Goodrich (NYSE:GR)
  • Northrop Grumman (NYSE:NOC)
  • Orbotech (NASDAQ:ORBK)
  • Raytheon (NYSE:RTN)
  • Rohm & Haas (NYSE:ROH)

Fool contributor Rich Smith does not own shares of any company named above.