We've already written about Motley Fool Hidden Gems pick II-VI (NYSE: IIVI) once this month, but events require that we write about it again -- quick. The laser equipment maker reports its third-quarter 2008 earnings tomorrow morning.

What analysts say:

  • Buy, sell, or waffle? One less analyst than last quarter now follows II-VI, but the vote's still unanimous: 5-0. They all vote "buy."
  • Revenues. On average, they're looking for 22% sales growth to $81.7 million.
  • Earnings. Profits are predicted to rise nearly as fast, up 21% to $0.40 per share.

What management says:
You've already seen the big news of the quarter. Recognizing that it does lasers better than most anybody, II-VI has decided to cut some fat, get lean and mean, and focus on its strengths. The company's eV Products division, which makes X-ray sensors, is on the auction block, price unknown.

With operating margins that hover in the 6.2% range, eV Products can certainly make some money for somebody. Accuray (Nasdaq: ARAY), Varian Medical (NYSE: VAR), L-3 (NYSE: LLL), and OSI Systems (Nasdaq: OSIS), for example, are all in the X-ray detection business. But II-VI's better off sticking to its flagship business, where margins are several times as large.

What management does:
And after II-VI succeeds in unloading eV Products? Well, revenues will take about a 2% hit, but on the bright side, profit margins earned at II-VI's remaining businesses should improve.

Margins

9/06

12/06

3/07

6/07

9/07

12/07

Gross

40.3%

41.6%

41.8%

41.7%

41.3%

40.9%

Operating

16.7%

18.1%

17.8%

18.4%

18.3%

18.3%

Net

4.8%

6.2%

7.1%

14.4%

14.6%

20.2%

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:
Nor, by the way, need you worry that the loss of a couple of million in quarterly revenue will curtail II-VI's growth. Based on the guidance management included in its divestiture announcement, we're told to expect about $81 million in revenues tomorrow. Whether the analysts have figured this into their estimates, I do not know. What I do know is that it still makes for strong double-digit sales growth -- and there's more where that came from.

II-VI says that it booked $93 million in new orders during the quarter. And if the company sold $81 million worth of stuff, but received orders for $93 million more stuff, that must mean ... you guessed it -- that sales are still growing.

So to sum up, we've got growing sales and expanding profit margins on those growing sales. Looks to me like II-VI's growth speedometer goes to XI.

IV more on II-VI, read:

Learn even more about why we like II-VI, and its laser cousin Rofin-Sinar (Nasdaq: RSTI  ) , when you take a free, 30-day trial of Motley Fool Hidden Gems.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.