IPG Photonics (IPGP) Q1 Earnings Lag, Revenues Top Estimates

IPG Photonics Corporation (NASDAQ:IPGP) 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.

Guidance

For the second quarter, IPG Photonics expects sales in the range of $340-$370 million. The Zacks Consensus Estimate for revenues is pegged at $349.6 million.

Earnings are projected in the range of 1.25-$1.55 per share. The Zacks Consensus Estimate for earnings is pegged at $1.54 per share.

Zacks Rank and Stocks to Consider

IPG Photonics carries a Zacks Rank #5 (Strong Sell).

A few better-ranked stocks in the broader technology sector are Castlight Health, Inc. (NYSE:CSLT) , Avid Technology, Inc. (NASDAQ:AVID) and Synopsys, Inc. (NASDAQ:SNPS) , 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 Castlight, Avid Technology and Synopsys is pegged at 22.5%, 10% and 10%, respectively.

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