It has been about a month since the last earnings report for IPG Photonics (IPGP). Shares have lost about 24.2% 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 the most recent earnings report in order to get a better handle on the important drivers.
IPG Photonics Q1 Earnings Miss, Revenues Beat Estimates
IPG Photonics Corporation reported first-quarter 2019 adjusted earnings of $1.02 per share, lagging the Zacks Consensus Estimate by a couple of cents. Further, the bottom line decreased 47% from the year-ago figure.
Revenues of $315 million surpassed the Zacks Consensus Estimate of $304.5 million. However, the figure declined 12% from the year-ago quarter.
Uncertainty in macroeconomic environment and geopolitical factors reduced demand in China and Europe, which impacted first-quarter revenues. However, Genesis acquisition contributed $24 million in total revenues during the reported quarter.
Revenues by Application
Materials processing (95.6% of total revenues) declined 11% year over year to $301.1 million, owing to weakness in 3D printing and metal cutting applications.
Further, revenues from other markets (4.4%) fell 32% year over year to reach almost $14 million. However, management is banking on sequential order growth witnessed from government and communications applications.
Revenues by Geography
Sales in United States and other North America (representing 20.6% of total sales) grew 65.4% year over year to $64.8 million.
However, sales in Eastern Europe/CIS (22%) decreased 16.6% from the year-ago quarter to $69.2 million. Moreover, sales in Germany (5.9%) plummeted 44% from the year-ago quarter to $18.6 million.
Revenues from China (36.3%) declined 24% to $114 million. Sales in Japan (5%) declined 20% from the year-ago quarter to $15.6 million.
Sales in other Asia and Australia, and rest of the world (approximately 10.2%) collectively declined almost 7% year over year to $32.4 million.
Revenues by Product Group
Sales of high-power CW lasers (56.8% of total revenues) declined 22% from the year-ago quarter to $179 million, 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.
Medium-power CW laser sales (5%) slumped 38.6% year over year, on account of weakness in additive manufacturing and cutting. Further, pulsed lasers sales (10%) of $31.4 million declined 17.8% year over year. QCW lasers sales (4.5%) fell 12.6% year over year to $14.2 million.
However, system sales (10.4%) of $32.6 million, increased significantly from year-ago figure of $9.5 million, primarily due to growth in materials processing, micro systems and Genesis acquisition.
Other revenues (13.4%) which include amplifiers, accessories, service, parts, among others came in at $42.2 million, up 5.6% year over year.
Margins in Detail
IPG Photonics reported gross margin of 47.3%, contracting 920 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 830 bps year over year to 25.6%, primarily due to higher investments in sales, engineering and administrative expenses. Consequently, operating margin contracted from 39.2% reported in the year-ago quarter to 21.7%.
Balance Sheet & Cash Flow
IPG Photonics ended the first quarter with $1.03 billion in cash & cash equivalents and short-term investments as compared with $1.04 billion reported in the previous quarter. Total debt (including current portion) came in at $44.5 million, down from $45.4 million in the previous quarter.
The company generated $45.6 million in cash flow from operations down from the previous quarter’s figure of $113 million.
For the second quarter, IPG Photonics expects sales in the range of $340-$370 million.
Earnings are projected in the range of 1.25-$1.55 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 -7.42% due to these changes.
At this time, IPG has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, 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. 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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