It has been about a month since the last earnings report for IPG Photonics (IPGP). Shares have added about 3% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
IPG Photonics Misses Q4 Earnings, Revenues Top Estimates
IPG Photonics reported fourth-quarter 2018 adjusted earnings of $1.40 per share, lagging the Zacks Consensus Estimate by 3 cents. Further, the bottom line decreased from the year-ago figure of $1.86 per share.
Revenues declined 9% from the year-ago quarter to $330.1 million. Foreign currency exchange impacted sales by roughly $2 million. Moreover, macroeconomic environment and geopolitical factors reduced demand in China which impacted fourth-quarter revenues. However, Genesis acquisition contributed $8.5 million in total revenues during the reported quarter. Further, the figure surpassed the Zacks Consensus Estimate of $314 million.
Materials processing declined 9% year over year, owing to weakness in 3D printing and metal cutting. Notably, it accounted for approximately 94% of total sales.
Nonetheless, revenues from other markets increased 5% year over year, primarily due to growth in communications, medical and government applications.
Geographic Revenue Details
China reported year-over-year sales decline of 19% and representing 36% of total sales. Sales in Japan increased 4% from the year-ago quarter. Sales in North America grew 32% year over year. Sales in Korea went up 9% year over year while revenues in Turkey decreased 40%. Moreover, sales in Europe decreased 12% from the year-ago quarter.
Sales of high-power CW lasers (56% of total revenues) declined 20% from the year-ago quarter, primarily owing to weaker-than-expected demand in China and Europe, lower sales of lasers for cutting and additive manufacturing. However, management noted that demand for 10 kilowatt and 6 kilowatt ultra-high power CW lasers gained momentum.
Notably, sales of 12 and 15 kilowatt lasers increased six-fold during the quarter under review. Additionally, the company unveiled one of the most compact 20 kilowatt cutting laser during the quarter.
Medium-power CW laser sales slumped 29% year over year, owing to weakness in additive manufacturing and cutting. However, pulsed lasers sales surged 33% year over year.
QCW lasers sales fell 12% year over year, primarily on account of lower-than-expected demand of consumer electronics investment cycle.
However, system sales increased 42% year over year, primarily due to growth in materials processing, micro systems and Genesis acquisition.
IPG Photonics reported gross margin of 50.5%, contracting 730 basis points (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 increased 570 bps year over year, primarily due to higher investments in sales, engineering and administrative expenses, and Genesis acquisition. Consequently, operating margin contracted from 41.1% reported in the year-ago quarter to 29.1%.
Balance Sheet & Cash Flow
IPG Photonics ended the fourth quarter with $1.04 billion in cash & cash equivalents and short-term investments as compared with $1.12 billion reported in the previous quarter. Total debt outstanding was $45.4 million, down from $46 million in the previous quarter.
The company generated $113 million in cash flow from operations up from the previous quarter’s figure of $72 million.
During the fourth quarter, IPG Photonics repurchased 466k shares worth $64 million under the share repurchase authorization program. Notably, the company announced a new repurchase authorization program of $125 million.
Fiscal 2018 Highlights
IPG Photonics reported fiscal 2018 adjusted earnings of $7.38 per share which increased from the year-ago figure of $6.36 per share.
Revenues increased 4% from the year-ago quarter to $1.459 billion. Materials processing increased 3% year over year in fiscal 2018.
The company provided soft first-quarter guidance owing to macroeconomic headwinds, foreign exchange currency fluctuations and geopolitical tension.
For first quarter, IPG Photonics expects sales in the range of $290-$320 million.
Earnings are projected in the range of 1.00-$1.20 per share.
The company expects Genesis acquisition to reduce first-quarter gross margin by roughly 200 bps.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -32.03% due to these changes.
Currently, IPG has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile 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 broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise IPG has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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