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Cognex Earnings: Can the Company Get Past Macro Challenges?

Danny Vena, The Motley Fool

Machine-vision leader Cognex (NASDAQ: CGNX) delivered record annual revenue, net income, and earnings per share in 2018 -- for the third consecutive year -- but investors gave a collective shrug because of near-term challenges. The company's results edge higher in Q4, but tough comps from the prior year made the performance look somewhat lackluster.

Cognex will have another opportunity to make its case directly to investors, as the company is scheduled to report the financial results of its first quarter after the market closes on Monday, April 29. Let's recap the company's fourth quarter and look at one noteworthy item that occurred since its last release to see if they provide any insight into what to expect when Cognex reports earnings.

Robotic arms assembling cars in a factory.

Image source: Getty Images.

A tough market

For the fourth quarter, Cognex generated record revenue of $193 million, a 6% year-over-year increase, the result of tough comps in the prior-year quarter. Things weren't much different on the bottom line, with net income of $45 million, and earnings per share of $0.26, up about 8% from the prior-year quarter. This marked the third consecutive year Cognex reported record revenue, record net income, and record earnings per share for the full year.

Unfortunately, the company is facing slowing growth and delayed spending in China -- which has been an area of higher growth for Cognex until recently. Challenging environments in its consumer electronics and automotive segments have also conspired to put the brakes on its growth.

A C-suite shocker

Early this month, Cognex announced that Chief Financial Officer John Curran will resign from Cognex. This was unexpected, as Curran had only been in the role for about two years. In a press release, Cognex CEO Robert J. Willett said: "Cognex is now actively recruiting to fill this important position. John will continue to serve in the role of CFO until May 3 and will remain available to the company on a consulting basis after that time."

Neither Curran nor Cognex offered up a reason for the executive's departure. Curran stepped in to fill the vacancy when Richard Morin retired in early 2017, after 18 years with the company.

Curran's departure raises questions over why he's leaving the company after such a short stint as CFO. Wall Street dislikes uncertainty, though the stock has edged slightly higher in the weeks since the announcement.

What the quarter could hold

For the first quarter, Cognex is forecasting revenue in a range of $165 million to $175 million, which would be essentially flat with last year at the midpoint of its guidance. This is primarily the result of lower spending by customers in China, as well as in the automotive sector in the Americas. Management is expecting gross margin to be in the mid-70% range, and operating expenses that edge higher on a sequential basis.

While we don't want to fall into its short-term mindset, Wall Street sentiment can help provide context. Analysts' consensus estimates are calling for revenue of $171.94 million, up 1.4% year over year, and just above the midpoint of management's guidance; and for earnings per share of $0.16, a decline of about 24%.

This is already a seasonally slow quarter for Cognex, and with the challenges the company is facing in China and the slowing growth in one of its largest segments, investors shouldn't expect the company to continue its record-breaking ways -- at least not this quarter. That said, Cognex has been known for the occasional surprise during earnings season, so I wouldn't count anything out when the company reports earnings.

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Danny Vena owns shares of Cognex. The Motley Fool owns shares of and recommends Cognex. The Motley Fool has a disclosure policy.