Missed it, beat it, missed it, beat it -- over the four quarters that Motley Fool Rule Breakers recommendation IPG Photonics (NASDAQ:IPGP) has been reporting earnings, the company has developed a remarkably consistent pattern of underperformance followed by outperformance (of Wall Street expectations, at least).

If the pattern holds, then tomorrow's Q2 news should disappoint. But can IPG break the chain?

What analysts say:

  • Buy, sell or waffle? A lucky seven analysts seem to think so. They unanimously rate IPG a "buy."
  • Revenues. On average, they expect to see 24% sales growth to $54.5 million.
  • Earnings. Profits are predicted to rise 28% to $0.18 per share.

What management says:
Citing improved gross margins driven by "higher absorption of fixed costs ... improved yields and increased production," along with "substantially increased order flow," CEO Valentin Gapontsev predicted strong results in the "second quarter and ... the following six to nine months."

Consistent with the analysts' estimates above, IPG guided investors to expect $52 million to $56 million in sales in tomorrow's report, and $0.15 to $0.19 in per-share earnings.

What management does:
Gross margins did indeed stabilize last quarter, halting a six-month slide in their rolling average. However, operating margins keep heading down, having fallen for four straight quarters.

Mind you, they're still superior to anything that rivals Coherent (NASDAQ:COHR), Rofin-Sinar (NASDAQ:RSTI), or Nortel (NYSE:NT) can put together. In fact, of IPG's rivals, only supertechs Corning (NYSE:GLW) and Cisco (NASDAQ:CSCO) currently trump IPG on operating profitability.

Margins

12/06

3/07

6/07

9/07

12/07

3/08

Gross

44.2%

46.1%

47.0%

46.4%

45.0%

45.1%

Operating

25.1%

26.0%

25.7%

25.4%

24.6%

23.9%

Net

20.4%

21.5%

21.0%

21.7%

15.8%

15.7%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
One positive note is that gross margins seem to be stabilizing from a slight decline in the previous quarters. I also think that the company should be able to withstand a sluggish domestic economy because it gets most of its sales from abroad. Last quarter, 82% came from international sources. Last quarter, Gapontsev called shipments into the EU "strong," and assured investors that IPG has "continued expansion into the high-growth markets of Russia, India, China and South Korea." These inroads "more than offset the softness we experienced in the U.S."

Then again, if the weakness here spreads further abroad, all bets are off.

Is the team at Motley Fool Rule Breakers similarly sanguine over IPG's prospects? It is a stock recommendation of the newsletter. Take a 30-day free trial to find out. Rofin- Sinar is a Motley Fool Hidden Gems pick.

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