Iivi Lasers
Image source: II-VI.

Over the course of several years, laser manufacturer II-VI (NASDAQ:IIVI) struggled to keep up with its competitors in the industry. Rivals like IPG Photonics (NASDAQ:IPGP) had great success in coming up with new applications for its laser products, but II-VI investors had to wait for a turnaround to take shape within the company. Coming into Tuesday's fiscal second-quarter results, II-VI had done a good job in 2015 of making progress, and its latest results only confirmed the positive path that the company has taken lately. Let's take a closer look at how II-VI has fared lately and why investors are celebrating the latest news from the laser maker.

II-VI takes aim, hits the target
II-VI's headline numbers for its fiscal second quarter were stronger than most investors following the company had expected to see. Sales jumped 8.3% to $192 million, topping the consensus forecast by about a percentage point of growth. Similarly, adjusted net income of $19 million was up 27% from year-ago figures, and that translated into adjusted earnings of $0.30 per share, 25% higher than last year's fiscal second-quarter results and $0.03 per share greater than investors were looking for.

Looking more closely at the figures, II-VI continued to make progress on the margin front. Operating margins jumped by 2 full percentage points to 11.3%, outpacing the 1.6 percentage point growth in gross margins. Gains in adjusted EBITDA margins also proved how far the company has come in tightening up its operations and maximizing profit potential.

Over the past year, II-VI has done a good job of diversifying its sources of profits among its three main segments. Laser Solutions continues to bring in more than half of II-VI's operating income, but the Photonics segment has emerged as a considerable profit source as well. Performance Products continues to lag behind as the only segment with falling revenue and operating income compared to the year-ago quarter.

CEO Francis Kramer highlighted the success of II-VI's efforts. "Our Photonics segment significantly increased revenues and earnings," Kramer said, "and its bookings were the catalyst for the Company's book to bill ratio of 1.08." The above-1 figure on that ratio indicates that the company has bringing in more future orders than it is completing, and that points toward further growth ahead.

Can II-VI keep climbing?
II-VI sees plenty more opportunity to keep the ball rolling in 2016. "Despite sluggishness in China and in our industrial markets," Kramer said, "we are very encouraged about the prospects ahead for all of our business segments." In its guidance, II-VI expects sales of $185 million to $195 million for the fiscal third quarter, with earnings of $0.25 to $0.29 per share. That's consistent with current analyst forecasts for $194 million in sales and $0.26 in earnings per share, but it also excludes the impact of acquisitions.

Indeed, the recent acquisitions that II-VI has made will play a vital role in its growth and in keeping competitors like IPG Photonics at bay. Earlier this month, the company announced that it would purchase two companies, EpiWorks and ANADIGICS. EpiWorks is a specialist in producing semiconductor wafers for electronic and photonic devices, helping to add to II-VI's expertise in engineered materials. ANADIGICS produces gallium arsenide wafers, which will allow II-VI to add capacity quickly and efficiently in order to bolster its enterprise-product portfolio in lasers.

By enhancing its ability to produce technology for use in applications like gesture recognition in consumer electronics and high-speed optical connectivity in data centers, II-VI thinks that the deals will be well worth the total $110 million in cash that it is spending for the two companies. That has become increasingly important because of advances that IPG Photonics has made in serving portions of the laser market beyond its prior core focus.

Investors were ecstatic about II-VI's results, sending shares up 14% in the first hour of trading after the announcement. Given how far the company has come in such a short time, II-VI has every chance of standing up to IPG Photonics and other laser producers and becoming a more powerful force throughout the industry.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends IPG Photonics. The Motley Fool recommends II-VI. 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.