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

Zacks Equity Research

IPG Photonics Corporation IPGP reported second-quarter 2019 earnings of $1.34 per share, which declined 39% from the year-ago quarter.

Adjusting foreign-exchange related loss of 8 cents, earnings were $1.42 per share.

Notably, the Zacks Consensus Estimate was pegged at $1.41.

Revenues of $363.8 million fell 12% on a year-over-year basis, but surpassed the consensus mark of $357 million.

Uncertainty in macroeconomic environment and geopolitical factors reduced demand in China and Europe, which impacted the second-quarter top line. However, Genesis acquisition contributed $22 million in total revenues in the reported quarter.

Revenues by Application

Materials processing (95% of total revenues) declined 11.8% year over year to $345.6 million, owing to weakness in 3D printing and metal cutting applications.

Further, revenues from other markets (5%) fell 15.9% year over year to $18.2 million.

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

Revenues by Geography

Sales in United States and other North America (representing 17.6% of total sales) grew 34.3% year over year to $64.1 million.

However, sales in Eastern Europe/CIS (16.8%) decreased 19.9% from the year-ago quarter to $61.1 million. Moreover, sales in Germany (6.5%) slumped 26% from the year-ago quarter to $23.7 million.

Revenues from China (45%) fell 19.4% to $163.6 million. Sales in Japan (4.8%) declined 10.4% from the year-ago quarter to $17.4 million.

Sales in other Asia and Australia, and rest of the world (approximately 9.3%) collectively declined almost 3.5% year over year to $33.8 million.

Revenues by Product Group

Sales of high-power CW lasers (58.7% of total revenues) were down 19.8% from the year-ago quarter to $213.4 million, primarily on account of weaker-than-expected demand in China and Europe, and decline in ASPs (or average selling price). However, management noted that demand for 10 kilowatt and 6 kilowatt ultra-high power CW lasers gained momentum.

Medium-power CW laser sales (4.2%) slumped 50.2% year over year to $15.4 million, on account of weakness in additive manufacturing and cutting. Further, pulsed lasers sales (11.2%) of $31.4 million declined 1.8% year over year to $40.8 million. QCW lasers sales (4.4%) fell 20.5% year over year to $15.97 million.

However, system sales (10.8%) of $39.4 million, improved significantly from year-ago figure of $13.4 million, primarily driven by synergies from Genesis acquisition.

Other revenues (10.7%) which include amplifiers, accessories, service, parts, among others came in at $38.8 million, down 6.5% year over year.

IPG Photonics Corporation Revenue (Quarterly)

IPG Photonics Corporation Revenue (Quarterly)

IPG Photonics Corporation revenue-quarterly | IPG Photonics Corporation Quote

Operating Details

IPG Photonics reported gross margin of 49.5%, contracting 730 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 expanded 700 bps on a year-over-year basis to 24.5%, primarily due to higher investments in sales, engineering and administrative expenses. Consequently, operating margin contracted from 39.3% reported in the year-ago quarter to 25%.

Balance Sheet & Cash Flow

IPG Photonics ended the second quarter with $1.04 billion in cash & cash equivalents and short-term investments as compared with $1.03 billion reported in the previous quarter. Total debt (including current portion) came in at $43.6 million, down from $44.5 million in the previous quarter.

The company generated $58.1 million in cash flow from operations compared with the previous quarter’s reported figure of $45.6 million.

Bleak Guidance for Q3

For the third quarter, IPG Photonics expects sales in the range of $325-$355 million. The Zacks Consensus Estimate for revenues is pegged at $365.08 million.

Earnings are projected in the range of 1.05-$1.35 per share. The Zacks Consensus Estimate for earnings is pegged at $1.56 per share.

Zacks Rank and Stocks to Consider

Currently, IPG Photonics carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector worth considering are Alteryx AYX, Rosetta Stone RST and Anixter International AXE. All the three stocks flaunt a Zacks Rank #1 (Strong buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alteryx, Rosetta Stone and Anixter is currently pegged at 13.66%, 12.5% and 8%, respectively.

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