It has been about a month since the last earnings report for IPG Photonics (IPGP). Shares have added about 1.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is IPG due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
IPG Photonics Q2 Earnings & Revenues Decline Y/Y
IPG Photonics Corporation reported second-quarter 2020 earnings of 71 cents per share, down 47% over the year-ago quarter. Management had projected earnings between 40 and 70 cents per share.
Notably, unfavorable foreign-exchange movement limited the bottom-line growth by 20 cents.
Revenues of $296.4 million fell 19% on a year-over-year basis. Unfavorable foreign-exchange movement reduced revenues by $2 million. IPG Photonics had anticipated revenues in the range of $260-$290 million.
The company delivered better-than-anticipated results as strong bookings growth in China drove performance. It witnessed modest uptick in order trends across other regions, as well. Moreover, strength in new products contributed to revenues.
Revenues by Application
Materials processing (91.7% of total revenues) declined 21% year over year to $271.7 million, due to soft demand for welding, cutting and marking applications.
Revenues from other applications (8.3%) improved 36% year over year to $24.7 million, driven by growing traction of advanced applications and solid uptick in devices utilized in medical procedures.
Revenues by Product Group
Sales of high-power CW lasers (53% of total revenues) were down 26% from the year-ago quarter to $157.5 million, primarily on account of coronavirus crisis-induced weak demand, and decline in ASPs (or average selling price). However, management noted that sales of 6 kilowatt or greater high power CW lasers represented 50% of all high power CW laser sales.
Medium-power CW laser sales (3.6%) slumped 30.6% year over year to $10.7 million. However, Pulsed lasers sales (14.4%) of $42.6 million improved 4.3% year over year. Moreover, QCW lasers sales (4.6%) declined 14% year over year to $13.7 million.
Also, Laser and Non-Laser system sales (8.4%) of $24.9 million fell 36.7% from the year-ago reported figure. Other revenues (15.9%), which include amplifiers, accessories, service, and parts, were $47 million, up 21.2% year over year.
Revenues by Geography
Sales in United States and other North America (representing 18.2% of total sales) fell 16% year over year to $53.9 million.
However, sales in other Eastern Europe/CIS (23%) declined 24% from the year-ago quarter to $46.5 million. Moreover, sales in Germany (7%) slumped 25.5% from the year-ago quarter to $17.6 million.
Revenues from China (49%) fell 11% to $145.2 million. Sales in Japan (4.9%) declined 16% year over year to $14.7 million. Sales in other Asia and Australia (approximately 5.7%) slumped 41.7% year over year to $16.9 million. Revenues from rest of the world (0.5%) plunged 68% to $1.6 million.
IPG Photonics reported gross margin of 46%, which contracted 350 basis points (bps) on a year-over-year basis. This can be attributed to higher percentage of manufacturing cost and lower revenue base.
As a percentage of revenues, operating expenses contracted from 49.5% reported in the year-ago quarter to 30.1%. Operating margin contracted 910 bps year over year to 15.9%.
Balance Sheet & Cash Flow
As of Jun 30, 2020, IPG Photonics had $1.249 billion in cash & cash equivalents and short-term investments compared with $1.195 billion as of Mar 31, 2020. As of Jun 30, 2020, total debt (including current portion) came in at $39.9 million, down from $40.8 million as of Mar 31, 2020.
The company generated $73.5 million in cash flow from operations compared with the prior-quarter figure of $56.8 million.
For third-quarter 2020, IPG Photonics anticipates sales in the range of $280-$310 million. Earnings are projected between 70 cents and $1.00 per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 9.18% due to these changes.
At this time, IPG has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, IPG has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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