Shares of telecom equipment maker JDS Uniphase (NASDAQ:JDSU) are leading Wall Street lower today in the wake of an earnings report featuring better-than-promised sales growth ($350.7 million, or $5.7 million more than the best JDS had hoped to achieve at last report), but an $0.08-per-share net loss that management chose to portray as a $0.07-per-share pro forma profit.

A better choice
Personally, I pay very little heed to pro forma numbers, and only slightly more attention to generally accepted accounting principles. More informative, I believe, is free cash flow -- a firm's true cash profitability. And JDS management is starting to warm to this concept as well, as we learned last quarter when CEO Kevin Kennedy boasted of his firm generating positive FCF for the first time in more than five years.

Well, today, you can make that "the second time." According to Kennedy, JDS generated "more than $25 million for the fourth quarter." How much more remains a mystery, however, as he declined to provide its shareholders with a cash flow statement along with the Q4 and full-year fiscal 2007 earnings release. The Form 10-K (which must contain this document) has not yet been filed with the SEC.

Granted, unless JDS earned a whole lot more than $25 million, it must still have ended the fiscal year with negative FCF. At last report, it had burnt through $43.3 million over the course of the first three quarters of the year. Add $25 million in positive FCF to that, and you're still sitting about $18 million deep in cash flow red ink for the year. Even so, back-to-back positive FCF quarters are a real achievement for the firm.

Sales are expected to continue climbing next quarter (management's guidance of $345 million to $360 million would translate into 8% to 13% growth year over year). This will add scale to the firm's operations, and probably improve gross margin further. While still inferior to rivals such as Agilent (NYSE:A), Tektronix (NYSE:TEK), and Finisar (NASDAQ:FNSR), JDS's gross rose 560 basis points YOY to 33.8%. Better gross margins on higher sales should yield even more FCF for JDS going forward.

So why is JDS share price falling? Search me, folks. I see only good news here.

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