IPG Photonics' (IPGP) To Report Q1 Earnings: What's In Store?

IPG Photonics Corporation (NASDAQ:IPGP) is set to report first-quarter 2019 results on Apr 30.

Past-Quarter Performance

The company reported fourth-quarter 2018 adjusted earnings of $1.40 per share, lagging the Zacks Consensus Estimate by 3 cents.

Further, revenues declined 9% from the year-ago quarter to $330.1 million. However, the figure surpassed the Zacks Consensus Estimate of $314 million.

What to Expect in Q1?

The company provided soft first-quarter guidance owing to macroeconomic headwinds, foreign exchange currency fluctuations and geopolitical tension. For the first quarter, IPG Photonics expects sales in the range of $290 million to $320 million.

The Zacks Consensus Estimate for revenues is currently pegged at $304.47 million, indicating a decline of almost 15.4% from the year-ago quarter.

Management projected earnings in the range of $1.00-$1.20 per share. Notably, estimates have remained unchanged in the past 30 days. The Zacks Consensus Estimate for earnings is pegged at $1.04 per share, suggesting a decline of 46.1% from the year-ago reported quarter.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Sluggish Demand from China: A Major Headwind

IPG Photonics’ dependence on select customers and substantial exposure to China amid tariff imposition are anticipated to negatively impact first-quarter results. Further, trade associated challenges in Europe are likely to be a headwind.

Moreover, sales of high-power CW lasers form a major portion of the company’s top line (56% in the prior-reported quarter). Sluggish demand in China, which is a notable market for high-power products, is anticipated to limit top-line growth in the to-be-reported quarter.

However, strength in cutting systems products and notable demand across aerospace drilling applications is anticipated to support high-power laser domain.

Further, sturdy demand for a variety of products, particularly welding, and government applications across North America, is likely to aid the to-be-reported quarter’s financials.

Genesis Buyout Exhibits a Mixed Near-term Picture

Acquisition of Genesis Systems Group (Genesis) announced in November 2018, is expected to aid top-line growth in the first quarter. Management intends to utilize Genesis' robotic systems integration capabilities to extend laser processing offerings to industrial, aerospace and transportation end markets, which is a positive. Notably, Genesis contributed $8.5 million to total revenues in the fourth quarter.

However, management anticipates Genesis acquisition to limit first-quarter gross margin expansion by approximately 200 bps.

Diversification of End Markets Hold Promise

IPG Photonics is gradually expanding into new end-markets like advanced applications (3D Printing, Cinema, and micro-materials processing), communications and medical based on robust product portfolio and strength in intellectual property (IP). This is likely to be aid the upcoming quarterly results.

In fact, the company is developing new medical applications using fiber lasers for urological and dental procedures. The expansion into new end-markets is anticipated to eventually lower exposure to the core material processing market, which is likely to reflect positively in the to-be-reported quarter’s results.

Moreover, Menara Networks buyout (announced in 2016) is aiding the company to enhance capabilities of its transceiver products, in turn expand presence in communications end market.

However, in a bid to cushion its business by diversification of end-markets, the company is witnessing higher research and development (R&D) related expenditure, which is an overhang on margin expansion in the to-be-reported quarter.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

IPG Photonics has a Zacks Rank #4 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks you may consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Paycom Software, Inc. (NYSE:PAYC) has an Earnings ESP of +3.17% and a Zacks Rank of 2. The company is scheduled to report first-quarter 2019 results on Apr 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

Square, Inc. (NYSE:SQ) has an Earnings ESP of +5.50% and a Zacks Rank #2. The company is scheduled to report first-quarter 2019 results on May 1.

Ameren Corp. (NYSE:AEE) has an Earnings ESP of +3.70% and a Zacks Rank #3. The company is scheduled to report first-quarter results on May 9.

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