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IPG Photonics (IPGP) Q2 Earnings & Revenues Decline Y/Y

Zacks Equity Research
·5 min read

IPG Photonics Corporation IPGP 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.
 

IPG Photonics Corporation Price, Consensus and EPS Surprise

IPG Photonics Corporation Price, Consensus and EPS Surprise
IPG Photonics Corporation Price, Consensus and EPS Surprise

IPG Photonics Corporation price-consensus-eps-surprise-chart | IPG Photonics Corporation Quote

The Zacks Consensus Estimate for second-quarter earnings and revenues was pegged at 58 cents and $275 million, respectively.

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 revenue (15.9%), which includes amplifiers, accessories, service, and parts, came in at $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.

Operating Details

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.

The company repurchased stock worth $16 million during the second quarter. Capital expenditures came in at $20 million.

Bleak Guidance

Uncertainty in demand visibility owing to global economic downturn remains a headwind. Nevertheless, management anticipates gaining from budding avenues across electric vehicle battery processing and systems, ultra-high power cutting, and devices used in the medical industry. Moreover, momentum in higher power products in core materials processing domain and strength in new solutions hold promise.

For third-quarter 2020, IPG Photonics anticipates sales in the range of $280-$310 million. The midpoint of the guided range — $295 million — is lower than the Zacks Consensus Estimate currently pegged at $301.75 million.

Earnings are projected between 70 cents and $1.00 per share (midpoint of 85 cents). The midpoint of the guided range — 85 cents — is lower than the Zacks Consensus Estimate currently pegged at 81 cents per share.

Zacks Rank & Stocks to Consider

Currently, IPG Photonics carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Dropbox DBX, Asure Software, Inc. ASUR and Analog Devices ADI. While Dropbox sports a Zacks Rank #1 (Strong Buy), both Analog Devices and Asure Software carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dropbox, Asure Software, and Analog Devices are scheduled to report earnings on Aug 6, Aug 10 and Aug 19, respectively.

Long-term earnings growth rate of Dropbox, Asure Software, and Analog Devices is pegged at 32.51%, 14% and 13.33%, respectively.

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