Why Is IPG (IPGP) Up 9.3% Since Last Earnings Report?

It has been about a month since the last earnings report for IPG Photonics (IPGP). Shares have added about 9.3% 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 catalysts.

IPG Photonics Q1 Earnings & Revenues Improve Y/Y

IPG Photonics delivered first-quarter 2021 earnings of $1.26 per share, compared with 68 cents reported in the year-ago quarter. Notably, favorable foreign-exchange movement benefited 9 cents to the bottom line.

Revenues of $345.6 million increased 39% on a year-over-year basis. IPG Photonics anticipated revenues in the range of $310-$340 million.

The company noted that the results were driven by strong bookings growth in China and North America along with growth in electric vehicle battery production and solar cell manufacturing as well as with robust demand for welding applications.

Revenues by Application

Materials processing (91.8% of total revenues) increased 45% year over year to $317.2 million. The upside can be attributed to higher demand for welding, solar cell manufacturing, cutting and ablation applications.

Revenues from other applications (8.2%) declined 9% year over year to almost $28.3 million, due to reduced revenue from medical which offset revenue growth in advanced applications and telecom.

Revenues by Geography

Sales in United States and other North America (representing 21.2% of total sales) improved 9% year over year to $73.4 million.

Moreover, sales in Germany (7.6%) soared 50.8% from the year-ago quarter’s level to $26.3 million

Sales in other Eastern Europe/CIS (17%) also increased 2.4% from the year-ago quarter’s level to $58.6 million.

Revenues from China (40.5%) were up 104% and came in at $139.8 million. Sales in Japan (3.1%) declined 21% to $10.9 million year over year.

Sales in other Asia and Australia (approximately 9.6%) rallied 45.1% year over year to $33.1 million.

Revenues from rest of the world (1%) soared 63.9% to $3.5 million.

Revenues by Product Group

Sales of high-power CW lasers (49.3% of total revenues) were up 43% from the year-ago quarter’s figure to $170.5 million, primarily due to higher sales of ultra-high power fiber lasers (6 kilowatts of power or greater) as well as pulsed and adjustable mode beam (AMB) lasers.

Management noted that sales of ultra-high power fiber lasers (6 kilowatts of power or greater) represented 55% of all high power CW laser sales.

Medium-power CW laser sales (4.6%) jumped 41.1% year over year to $15.9 million, while Pulsed lasers sales (16%) of $55.4 million increased 74% year over year.

Moreover, QCW lasers sales (4%) climbed 38.4% year over year to $13.7 million.

Also, Laser and Non-Laser system sales (7.8%) of $27.1 million improved 45.5% from the year-ago quarter’s reported figure.

Other revenues (18.2%), which include amplifiers, accessories, service, and parts, came in at $63 million, up 8.1% year over year.

Operating Details

IPG Photonics reported a gross margin of 47.5%, which expanded 620 basis points (bps) on a year-over-year basis. This can be attributed to low-cost production capabilities, higher revenue base and a favorable product mix.

Operating expenses increased 29.4% to $75.2 million. As a percentage of revenues, operating expenses contracted to 21.7% compared with the year-ago quarter’s figure of 23.3%.

Operating margin came in at 25.7% compared with the year-ago quarter’s figure of 18%.

Balance Sheet & Cash Flow

As of Mar 31, 2021, IPG Photonics had $1.445 billion in cash & cash equivalents and short-term investments compared with $1.391 billion as of Dec 31, 2020.

As of Mar 31, 2021, total debt (including current portion) came in at almost $37 million compared with $38 million as of Dec 31, 2020.

The company generated $88 million as cash flow from operations compared with the prior-quarter’s figure of $85 million.

The company repurchased $3 million worth of stock during the first quarter. Capital expenditures came in at $27 million compared with $26 million in the prior quarter.

Guidance

IPG Photonics expects the improving macroeconomic environment and recovery in capital spending along with emerging trends like energy efficiency and sustainability, displacement of legacy lasers and increases in electric vehicle battery capacity to drive demand for its laser solutions.

Revenues from the core materials processing market are expected to rise on the back of momentum in higher power products. The company is optimistic about its ability to grow in other applications beyond cutting and welding, which include budding avenues across electric vehicle battery processing, solar cell manufacturing and advanced applications devices used in the medical and micro-processing industry. Moreover, strength in new solutions holds promise.

For second-quarter 2021, IPG Photonics anticipates sales to be $360-$390 million.

Earnings are projected between $1.20 and $1.50 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, IPG has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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