II-VI buoyed by bookings growth

28 Jan 2015

Component maker's stock price jumps 15% on news of stronger earnings and a record backlog.

The optics, photonics and materials company II-VI has reported a sharp increase in bookings in its latest financial results, prompting a 15 per cent rise in the Pittsburgh-headquartered company’s stock price.

For the three months ending December 31, II-VI posted net earnings of $22.1 million – up nearly three-fold on the figure of $7.6 million it reported a year ago, when profits were depressed by acquisition complexities. The latest earnings jump came despite a much more modest increase in sales, which rose from $171.7 million a year ago to $176.8 million.

CEO Francis Kramer highlighted the streamlining efforts that have made that possible, telling investors: “We have focused on improving our margins through increased discipline in operations and product rationalization.” He is predicting a dramatic improvement to profit margins in the company’s current fiscal year, which ends in June.

Bookings are also up strongly, with II-VI announcing a book-to-bill ratio of 1.06 and a best-ever sales backlog of $228 million.

Performing very strongly in the latest quarter was the firm’s “II-VI Photonics” reporting segment, which includes what was previously referred to as near-infrared optics products (made by subsidiary Photop), plus the pump laser and optical amplifier businesses that were acquired from Oclaro just over a year ago.

Laser utilization up; EUV demand strong
Though down sequentially because of the seasonal nature of the market, II-VI Photonics’ divisional sales of $60.9 million were up more than 10 per cent year-on-year, while bookings rose by more than 25 per cent to $66.1 million.

President and COO Vincent Mattera told an investor conference call: “Laser utilization in the North American market was driven by a steadier US economy during the quarter. We exited the quarter with strong bookings from both OEMs and the aftermarket.”

Mattera also highlighted solid demand for applications in the automotive and extreme ultraviolet (EUV) lithography sectors, with EUV-related shipments (II-VI makes diamond optics used in the laser-produced plasma source of the new lithography tools) at record levels. “Our customer continues to take as much product as we can currently produce,” he said, contrasting that situation with concern about the wider European economy.

“Experts point to early warning signs that the economy is slowing, as well as the uncertainty around euro currency valuations and the impact of Swiss monetary policies on our business,” Mattera added. The former Oclaro, JDSU and IBM facility where II-VI manufactures high-power diodes and VCSELs is located in Zurich, Switzerland, and could be impacted by the decision by the Swiss National Bank to introduce negative interest rates in a bid to weaken the Swiss franc.

Meanwhile, demand for components used in fibers laser remains strong in China and Japan, along with that for high-power laser diode assemblies. “Several next-generation laser diode products are in qualification that target growth opportunities,” Mattera said. “We will focus on our epitaxial growth in wafer fabrication platforms and contract manufacturing assembly yields.”

In their outlook, the II-VI executive team said that they expected to deliver sales of between $174 million and $182 million in the current quarter.

That and the positive developments on bookings appeared to prompt a positive reaction from the financial markets, with II-VI's stock up 15 per cent immediately following the January 27 earnings release and another 5 per cent in early trading on January 28.

At around $17 per share on the Nasdaq exchange, the company now has a market capitalization of just over $1 billion.