The Motley Fool's David Meier said in his July 25 update on optical networking equipment vendor, Infinera (NASDAQ:INFN) that "Infinera just can't seem to keep up the good work it's doing for any length of time."

In fact, Meier described the company's second quarter results as "excellent" and stated that the company's third quarter guidance "exceeded analyst expectations." However, Meier noted that management comments regarding uncertainty around the fourth quarter of this year and the first quarter of 2015 weighed on the stock.

So, what should investors be looking for on Oct. 22 when the company reports its third quarter results and, perhaps more importantly, issues its fourth quarter guidance?

What should investors be looking at for the third quarter?
For the quarter Infinera is about to report, management guided to the following financial metrics:

  • Revenue in the range of $165 million-$175 million
  • Gross margin percentage "in the low 40s"
  • Operating expenses of between $60 million-$62 million
  • Earnings per share of $0.07 give or take a "couple of pennies"

Now, according to Yahoo! Finance, sell-side analyst consensus for revenue sits at $170.86 million and earnings-per-share at $0.07, or approximately the midpoint of the ranges that Infinera gave. However, as noted previously, the concerns around Infinera don't seem to be due to the third quarter numbers, but rather around the next two quarters.

The much more important thing to watch here will be the guidance that the company issues for the fourth quarter, in addition to any commentary that management makes around 2015 expectations.

What about the fourth quarter and moving into 2015?
Analyst consensus for the fourth quarter sits at $160.44 million in revenue and $0.05 in earnings per share. These numbers, despite being down from the second quarter, would represent 15.3% revenue growth and a substantial improvement in earnings per share from $0.00 during the year-ago period. 

Further, while Infinera doesn't seem to issue full-year guidance, management's commentary regarding how it feels about the business over the longer-term could impact analyst estimates for 2015.

Analyst consensus for Infinera's 2015 revenue and earnings per share sit at $716.36 million and $0.39, respectively. These numbers imply that Wall Street is looking for 12% revenue growth and 50% earnings-per-share growth during 2015.

Optimism from management (particularly if fourth quarter guidance is strong) could lead to an upward revision to these estimates, but weaker-than-expected fourth quarter guidance and/or tepid commentary about the future could lead to downward revisions.

Keep an eye on margins
David Meier noted previously that "Infinera continues to focus on taking market share at this point in the cycle, meaning it plans to try and sell more razors than high-margined razor blades."

The idea here, then, is that the more "razors" that Infinera can sell, the more of those "high-margined razor blades" it can sell later on. In fact, CEO Tom Fallon indicated on the most recent earnings call that the longer it takes Infinera to get to the point of selling a richer mix of "razor blades" than "razors," the better off it will be for shareholders over the long-term.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Infinera. The Motley Fool owns shares of Infinera. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.