IPG Photonics Corporation IPGP reported third-quarter 2019 earnings of $1.07 per share, which lagged the Zacks Consensus Estimate by 9.2%. Further, the reported figure declined 42% from the year-ago quarter.
Revenues of $329.14 million fell 8% on a year-over-year basis, and missed the consensus mark of 337.45 million.
Unfavorable foreign-exchange movement limited earnings by 1 cent and revenues by $5 million.
Uncertainty in macroeconomic environment and geopolitical factors reduced demand for high-power CW lasers across China and Europe, which impacted the third-quarter top line. However, Genesis acquisition contributed $20 million in total revenues in the reported quarter.
Revenues by Application
Materials processing (93% of total revenues) declined 8.4% year over year to $306.3 million, thanks to weakness in 3D printing and metal cutting applications.
Further, revenues from other markets (7%) improved 4.7% year over year to $22.9 million.
Revenues by Geography
Sales in United States and other North America (representing 21.6% of total sales) improved 32.1% year over year to $71.0 million.
However, sales in Eastern Europe/CIS (18.9%) declined 6.3% from the year-ago quarter to $62.2 million. Moreover, sales in Germany (5.2%) slumped 20.8% from the year-ago quarter to $17.2 million.
Revenues from China (36.9%) fell 23.6% to $121.3 million. Sales in Japan (6.6%) remained almost flat at $21.9 million year over year.
Sales in other Asia and Australia, and rest of the world (approximately 10.8%) collectively improved 5.4% year over year to $35.6 million.
IPG Photonics Corporation Price, Consensus and EPS Surprise
IPG Photonics Corporation price-consensus-eps-surprise-chart | IPG Photonics Corporation Quote
Revenues by Product Group
Sales of high-power CW lasers (56.2% of total revenues) were down 18.7% from the year-ago quarter to $184.9 million, primarily owing to 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. Specifically, sales of 10 kilowatts or greater high power CW lasers grew 3% on a year-over-year basis.
Medium-power CW laser sales (3.6%) slumped 37.7% year over year to $11.9 million, on account of weakness in additive manufacturing and cutting. Further, pulsed lasers sales (10.3%) of $33.9 million declined 4.4% year over year. QCW lasers sales (3.8%) fell 31.7% year over year to $12.5 million.
However, system sales (10%) of $32.9 million soared 124% from the year-ago reported figure, primarily driven by synergies from Genesis acquisition.
Other revenues (16.1%), which include amplifiers, accessories, service, and parts, came in at $53.1 million, up 28.2% year over year.
IPG Photonics reported gross margin of 46.4%, contracting 840 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 390 bps on a year-over-year basis to 23.9%, primarily due to higher investments in sales, engineering and administrative expenses. Consequently, operating margin contracted from 34.8% reported in the year-ago quarter to 22.5%.
Balance Sheet & Cash Flow
IPG Photonics ended the third quarter with $1.08 billion in cash & cash equivalents and short-term investments compared with $1.04 billion reported in the previous quarter. Total debt (including current portion) came in at $42.6 million, down from $43.6 million in the previous quarter.
The company generated $91.8 million in cash flow from operations compared with the previous quarter’s reported figure of $58.1 million.
The company repurchased stock worth $24 million during the third quarter.
Bleak Guidance for Q4
For the fourth quarter, IPG Photonics anticipates sales in the range of $270-$300 million. The Zacks Consensus Estimate for revenues is currently pegged at $323.97 million.
Earnings are projected in the range of 55-95 cents per share. The Zacks Consensus Estimate for earnings is currently pegged at $1.14 per share.
Zacks Rank & Stocks to Consider
Currently, IPG Photonics carries a Zacks Rank #3 (Hold).
NetEase NTES, Benefitfocus BNFT and Five9 FIVN are some better-ranked stocks in the broader computer and technology sector, each sporting 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 NetEase, Benefitfocus and Five9 is pegged at 31.93%, 20% and 10%, respectively.
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