January 21, 2009 / 2:19 PM / in 10 years

UPDATE 2-II-VI outlook solid amid slump; shares rise

* Q2 EPS beats estimate by 1 cent * Says cut jobs, to reduce capex

* Cuts upper-end of FY EPS view

* Shares rise 20 pct

By Biswarup Gooptu

BANGALORE, Jan 21 (Reuters) - II-VI Inc (IIVI.O) trimmed the upper-end of its full-year earnings forecast, but the outlook was still above estimates, as the optical and electronic instruments maker battles a drop in demand from its non-military markets.

Shares of the company, which said it cut jobs and will reduce capital spending amid the downturn, were trading up nearly 20 percent.

The market reacted positively to the fact that the company did not cut its guidance by much, Longbow Research analyst Mark Douglass said.

“The guidance was pretty much correct, even though things got worse, it appears, in December. The fact that they did not lower the bottom-range of their guidance is why people are reacting favourably,” the analyst, who has a “neutral” rating on the company’s stock, said by phone.

For the full-year ending June 30, 2009, II-VI expects earnings from continuing operations between $1.30 a share and $1.40 a share on revenue of $295 million to $305 million.

In December, it had forecast earnings from continuing operations of $1.30 a share to $1.45 a share on revenue of between $290 million to $300 million.

Analysts expect earnings of $1.20 a share, before items, on revenue of $296.5 million.

II-VI planned to lower its 2010 capital expenditure to range between $10 million and $12 million, and also expects to lower annual operating expenses in excess of $5 million, Chief Executive Francis Kramer said in a conference call.

Second-quarter earnings from continuing operations fell 70 percent to 28 cents a share but beat market expectations by a penny.

Earnings from the company’s main segment, Infrared Optics, grew 24 percent to $9.7 million, helped by operating efficiency and lower input costs.

Longbow Research’s Douglass said he had not expected the segment to perform as it did, since majority of it dealt with commercial and industrial applications.

“I was expecting lower margins, since I anticipated a sharper volume decline... Industrial applications in the last December quarter fell dramatically,” he said.

The analyst also said he did not expect the situation to improve for the next six months.

“The decline has been so severe and so sharp that the next quarter will have similar type of run rate or results, compared to the December quarter.”

Shares of the Saxonburg, Pennsylvania-based company rose to a high of $19.90, before paring some of their gains to trade up $3.24 at $19.61 Wednesday afternoon on Nasdaq. (Editing by Mike Miller, Aradhana Aravindan)

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