II-VI (IIVI +2.75%) makes lasers, and that's been a great place to be recently. With the stock having seen impressive gains due to strong customer demand, II-VI has been able to take advantage of favorable industry conditions to build up its business and find lucrative niches to serve.
Coming into Thursday's fiscal second-quarter report, II-VI investors weren't certain if the company would be able to keep its earnings moving higher, although they had high hopes for the company's top line. II-VI managed to deliver more than some had feared, and it gave shareholders reason to be optimistic about the future as well. Let's look more closely at II-VI and what to expect in the future for the company.
Image source: II-VI.
II-VI warms up
II-VI continued its string of solid performance with its fiscal second-quarter results. Sales climbed 21% to $281.5 million, topping the 19.5% growth rate that represented the consensus forecast among those following the stock. The company took a one-time hit from tax reform, but adjusted net earnings were up 6% to $25.4 million, and that translated into adjusted earnings of $0.39 per share. That topped the $0.37 per share most investors were expecting to see.
Tax reform held back some of II-VI's earnings growth. The company reported a $15.8 million charge as a result of the new tax laws, costing it $0.24 per share in lost earnings.
Yet fundamentally, II-VI bounced back from its sluggish performance in recent quarters. Revenue was up $20 million just in the past three months, and sequential gains in operating income and book-to-bill ratios helped to buoy sentiment about the laser manufacturer's business prospects. At 1.05, the book-to-bill ratio showed accelerating order flow that could bode well for the near future as well.
II-VI saw a reversal in its key drivers of success. The once-weak laser solutions business saw a 35% jump in revenue from the year-ago quarter, with a 25% rise in operating income. Performance products grew at a 24% pace with an even more dramatic 70% boost in operating income. Only the photonics segment, which was particularly strong last quarter, lagged behind, posting top-line segment gains of less than 10% and about a 6% rise in operating income.
CEO Chuck Mattera was happy with the results. "Revenues and adjusted EPS this quarter were at the top end of our guidance," Mattera said, "driven by solid performance from all three segments." The CEO pointed to good conditions in end markets helping to drive II-VI's gains.
What's next for II-VI?
II-VI is optimistic about what the future will bring. As Mattera put it, "Our growth markets as well as our core markets of industrial and communications are positioned to benefit as the end markets continue to mature." Tax reform should also help II-VI going forward.
Once again, though, II-VI didn't manage to give investors the guidance they had hoped to see. The laser maker expects revenue of $270 million to $285 million, below the $287 million consensus forecast among those following the stock. Earnings of $0.33 to $0.40 per share would also be a shortfall compared to the $0.42 investors want.
II-VI shareholders didn't seem to put too much credence in that pessimistic forecast, though, and the stock dropped less than 1% in after-hours trading following the announcement. Given the strong potential that lasers have to drive progress in many industries, investors hope that II-VI will keep finding new uses for its products and get more customers on board to enjoy their power in the years to come.
