IPG Photonics (IPGP) Q4 Earnings Lag, Revenues Top Estimates

IPG Photonics Corporation IPGP reported fourth-quarter 2018 adjusted earnings of $1.40 per share, lagging the Zacks Consensus Estimate by 3 cents. Further, the bottom line decreased from the year-ago figure of $1.86 per share.

Revenues declined 9% from the year-ago quarter to $330.1 million. Foreign currency exchange impacted sales by roughly $2 million. Moreover, macroeconomic environment and geopolitical factors reduced demand in China which impacted fourth-quarter revenues. However, Genesis acquisition contributed $8.5 million in total revenues during the reported quarter. Further, the figure surpassed the Zacks Consensus Estimate of $314 million.

Materials processing declined 9% year over year, owing to weakness in 3D printing and metal cutting. Notably, it accounted for approximately 94% of total sales.

Nonetheless, revenues from other markets increased 5% year over year, primarily due to growth in communications, medical and government applications.

IPG Photonics Corporation Revenue (Quarterly)

 

IPG Photonics Corporation Revenue (Quarterly) | IPG Photonics Corporation Quote

Geographic Revenue Details

China reported year-over-year sales decline of 19% and representing 36% of total sales.  Sales in Japan increased 4% from the year-ago quarter. Sales in North America grew 32% year over year. Sales in Korea went up 9% year over year while revenues in Turkey decreased 40%. Moreover, sales in Europe decreased 12% from the year-ago quarter.

Product Details

Sales of high-power CW lasers (56% of total revenues) declined 20% from the year-ago quarter, primarily owing to weaker-than-expected demand in China and Europe, lower sales of lasers for cutting and additive manufacturing. However, management noted that demand for 10 kilowatt and 6 kilowatt ultra-high power CW lasers gained momentum.

Notably, sales of 12 and 15 kilowatt lasers increased six-fold during the quarter under review. Additionally, the company unveiled one of the most compact 20 kilowatt cutting laser during the quarter.

Medium-power CW laser sales slumped 29% year over year, owing to weakness in additive manufacturing and cutting. However, pulsed lasers sales surged 33% year over year.

QCW lasers sales fell 12% year over year, primarily on account of lower-than-expected demand of consumer electronics investment cycle.

However, system sales increased 42% year over year, primarily due to growth in materials processing, micro systems and Genesis acquisition.

Operational Details

IPG Photonics reported gross margin of 50.5%, contracting 730 basis points (bps) on a year-over-year basis. This can be attributed to higher manufacturing cost and lower revenue base.

As a percentage of revenues, operating expenses increased 570 bps year over year, primarily due to higher investments in sales, engineering and administrative expenses, and Genesis acquisition. Consequently, operating margin contracted from 41.1% reported in the year-ago quarter to 29.1%.

Balance Sheet & Cash Flow

IPG Photonics ended the fourth quarter with $1.04 billion in cash & cash equivalents and short-term investments as compared with $1.12 billion reported in the previous quarter. Total debt outstanding was $45.4 million, down from $46 million in the previous quarter.

The company generated $113 million in cash flow from operations up from the previous quarter’s figure of $72 million.

During the fourth quarter, IPG Photonics repurchased 466k shares worth $64 million under the share repurchase authorization program. Notably, the company announced a new repurchase authorization program of $125 million.

Fiscal 2018 Highlights

IPG Photonicsreported fiscal 2018 adjusted earnings of $7.38 per share which increased from the year-ago figure of $6.36 per share.

Revenues increased 4% from the year-ago quarter to $1.459 billion. Materials processing increased 3% year over year in fiscal 2018.

Outlook

The company provided soft first-quarter guidance owing to macroeconomic headwinds, foreign exchange currency fluctuations and geopolitical tension.

For first quarter, IPG Photonics expects sales in the range of $290-$320 million. The Zacks Consensus Estimate for revenues is pegged at $3312 million.

Earnings are projected in the range of 1.00-$1.20 per share. The Zacks Consensus Estimate for earnings is pegged at $1.54 per share.

The company expects Genesis acquisition to reduce first-quarter gross margin by roughly 200 bps.

Zacks Rank and Stocks to Consider

IPG Photonics carries a Zacks Rank #3 (Hold)

Some better-ranked stocks in the broader technology sector are Symantec Corporation SYMC, salesforce.com, inc. CRM and Twilio Inc. TWLO, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Symantec, salesforce and Twilio have a long-term earnings growth rate of 7.9%, 24.2% and 9%, respectively.

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