What a difference a quarter makes. Even though II-VI (NASDAQ:IIVI) reported a decent second quarter, the market took the stock down hard. While the third quarter was good, it wasn't that much better than the second, yet the stock was up nearly 10% early Thursday morning. And people really wonder why investors think that the market is manic-depressive?
Sales for II-VI were up 36% for the third quarter ($53 million), and total bookings climbed 22% to a bit under $51 million, bringing the backlog up to $82.5 million.
The growth numbers looked best in the near-infrared business, as revenue grew 29% and bookings climbed 41% in part because of strong demand for UV products. In the company's largest business, infrared optics, revenue climbed 12%, and bookings were up 13%.
Because of the inclusion of the acquired Marlow business, gross margins fell about 6% to 40.3%. Margins were also hurt by ongoing cost increases in materials like selenium. Prices for selenium have been on fire over the past 18 months, rising from about $5 a pound to around $50 a pound. All the same, the company managed to post 31% earnings-per-share growth.
Management saw considerable strength in U.S. markets during the quarter and thinks that optics consumption will continue to increase ahead of world economic growth. As companies in both the U.S. and abroad modernize production to stay cost-competitive, lasers are increasingly replacing machine tools and other cutting, welding, and etching/marking machines.
Not only are lasers increasingly being used in the heavy manufacturing, medicine, and consumer goods industries, but they are also becoming more sophisticated and powerful and consuming more optics. That's a win-win for II-VI, since it should see not only more lasers in general being used but also higher optics consumption on a per-laser basis.
So while Motley Fool Hidden Gems recommendation Rofin-SinarTechnologies (NASDAQ:RSTI) and competing laser maker Coherent (NASDAQ:COHR) continue to sell more and more of the "razors," II-VI stands ready to supply the "razor blades."
What's more, while the semiconductor equipment industry isn't exactly on fire just yet, recent guidance from Intel (NASDAQ:INTC) was encouraging, and II-VI could begin to see greater contributions from the business segment in a year or two.
II-VI might not be the cheapest stock around, but growth is on track, and the company is well-positioned to take advantage of the ongoing expansion in the worldwide laser market. Rofin-Sinar might be a better pick for more value-oriented investors, but II-VI boasts somewhat higher margins and return on equity and is considerably more "platform neutral" with respect to the worldwide laser market.
For more on lasers, check out these other Foolish takes:
- LCA-Vision Focuses on Profit
- Candela Does a Slow Burn
- Rofin-Sinar's Searing Quarter
- II-VI Gets Zapped
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
