A month has gone by since the last earnings report for IPG Photonics (IPGP). Shares have lost about 10% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is IPG due for a breakout? 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 Q2 Earnings & Revenues Down Y/Y
IPG Photonics 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.
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 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.
For the third quarter, IPG Photonics expects sales in the range of $325-$355 million. Earnings are projected in the range of $1.05-$1.35 per share.
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 -23.84% due to these changes.
Currently, IPG has a subpar Growth Score of D, however its Momentum Score is doing a bit better 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 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 these revisions indicates a downward shift. It's no surprise IPG has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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