This column originally appeared on Real Money Pro at 2 p.m. EDT on April 23.
NEW YORK (
Real Money) -- On Tuesday morning, laser optic manufacturing company
(IIVI) reported its March quarter results. I recommended this company to
Real Money Pro subscribers as a way to play the rebound in manufacturing and to benefit from the ongoing shift toward laser based manufacturing.
Although the company missed bottom-line expectations by 1 cent per share, the stock gapped down more nearly 14% in early market trading. Putting this into perspective, that 1 cent per share miss equates to a 4% earnings miss considering II-VI delivered earnings of 25 cents per share for the March quarter.
Rather than simply rely on the headlines and flash news reported by a number of services, I read through the company's earnings release this morning and found several positives, particularly when I viewed its results on a sequential basis. While year-over-year comparisons are what the financial media reports, the sequential comps indicate the direction of the business.
Here's what I found:
- Overall bookings rose 10%, quarter over quarter. This bodes well for revenue growth in the coming quarters.
- Bookings at the company's high margin infrared optics rose an even stronger 15% vs. the December quarter. This is quite bullish for both margins and earnings growth in the coming quarters.
- II-VI completed three acquisitions in recent months, which were a drag on profits during the quarter. That is a short-term issue and the management team has a track record of integrating businesses and squeezing the costs out of them.
- During the quarter, the company completed the $25 million share repurchase program authorized in May 2012.
To me, those are positive developments that the financial media has glossed over. While I could complain about that, I would rather be a smart investor and turn lemons into lemonade. Therefore, my recommendation for patient investors is to use this morning's pullback in IIVI shares to their advantage: Either average down existing IIVI positions or initiate one at current levels. While I am not a technical analyst by trade -- I'm more of a fundamentalist -- a quick look at the stock's pricing chart over the last three years shows that the shares are trading near historic bottoms.
We also have to remember that the underlying economy is in far better shape than it was last year or even two years ago. The housing sector is rebounding and improved demand for both single and multifamily housing augurs well for durable goods (hot water heaters, appliances and the like). Combine this with improving automotive volumes and it means solid demand for IIVI's laser optics, particularly for higher margin after-market sales for laser optics.
Monday's commentary from construction equipment company
painted a solid picture for both housing and construction equipment order rates. Similarly, heavy truck vendor
is bullish on demand for the second half of 2013 and cites "increased housing starts and construction activity" as well as the ongoing replacement of an aging truck fleet. Later this week, we'll not only get the March read on durable orders, but we'll also hear from several homebuilders, including
As a final note, I have known II-VI's management team for a number of years, and I can safely say this is one company that likes to under promise and over perform.