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Why II-VI Stock Popped 10% This Morning

By Rich Smith – Feb 11, 2020 at 1:05PM

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Investors see green as laser maker's big sales beat this quarter outweighs concerns over profits next quarter.

What happened

Shares of II-VI (IIVI -2.97%) stock popped more than 10% in early trading Tuesday after the maker of laser components announced stronger-than-expected sales in conjunction with an in­-line earnings report last night.  

Heading into earnings day, analysts had predicted II-VI would earn "adjusted" profits of $0.36 per share on sales of just $610.3 million. As it turned out, II-VI hit that earnings target -- and produced sales of $666.3 million.  

II-VI shares remain up 5.2% as of 12:35 a.m. EST.

Green laser

Image source: Getty Images.

So what

Emphasizing the sales beat, II-VI introduced its report with a boast that its $666.3 million in fiscal Q2 2020 sales "exceeded [the] top end of our guidance by 6% and [beat] the analysts' consensus by 9%." Sales were strong "across most markets," continued II-VI management, and while the company lost money according to generally accepted accounting principles (GAAP), it was profitable pro forma, and the GAAP loss was because of "$91 million of one time transaction expenses."

So it wasn't all good news.

II-VI grew its sales 94% year over year by absorbing Finisar and its revenue stream, but the company's losses as calculated according to generally accepted accounting principles (i.e., its GAAP loss) tripled to $1.08 per share. Even when those losses are taken pro forma, II-VI saw a 36% reduction in profits to the aforementioned $0.36 per share (which met Wall Street's prediction).

Now what

Fiscal Q2 was "the first full quarter of II-VI operations with Finisar included," as management pointed out, which starts the process of eliminating questions over how comparable future results are to II-VI's performance before the acquisition. Still, there are going to be a few more quarters ahead in which pro forma numbers need to be considered.

Looking ahead, therefore, management predicts that this current fiscal Q3 2020 should end with II-VI making between $550 million and $600 million in sales, figures that include the effects of coronavirus concerns that may depress results by $50 million or more. Pro forma profits could land in a much wider range of from $0.02 to $0.32 per share.

That's a lot less profit than the $0.39 per share that Wall Street is predicting, by the way. But so far at least, it seems investors are willing to give II-VI a pass on that.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends II-VI. The Motley Fool has a disclosure policy.

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