It has been about a month since the last earnings report for IPG Photonics (IPGP). Shares have added about 3.4% in that time frame, underperforming 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 drivers.
PG Photonics Corporation reported second-quarter 2018 earnings of $2.21 per share, missing the Zacks Consensus Estimate by a penny. However, earnings fared better than the year-ago figure of $1.91 per share.
Strong year-over-year growth was driven by a surge of 11.9% in sales from the year-ago quarter to $413.6 million. The increase can primarily be attributed to robust adoption of IPG Photonics' high power products. However, the figure lagged the Zacks Consensus Estimate of $418 million.
Materials processing jumped 11% year over year, driven by strength in 3D printing and cutting applications. Notably, it accounted for approximately 95% of total sales.
IPG Photonics is benefiting from strong adoption of fiber lasers over conventional lasers as well as non-laser cutting and welding equipment. According to management, secular transition to high-powered products and increased electric vehicle battery production were the primary catalysts behind the increased adoption of the high powered lasers.
Robust performance in China, Europe and Japan with strong demand across a variety of applications and industries drove year-over-year sales growth. Apart from strong order flow, robust integration of the company's business model with vertically-integrated manufacturing operation, production & operations management, customer credit management and global administration aided growth.
Geographic Revenue Details
China reported year-over-year sales growth of 10% and represented 49.1% of total sales. Sales in Japan declined 2% from the year-ago quarter and represented 4.7% of total sales. Sales in Europe increased 18% from the year-ago quarter and represented 18.5% of total sales. Sales in the United States and other North America grew 23% year over year and represented 11.5% of total sales.
Sales of high-power CW lasers (64% of total revenues) surged 20% from the year-ago quarter. Moreover, management also noted that demand for 6 kilowatt ultra-high power CW lasers gained momentum.
Medium-power CW laser sales accounted for 6.7% of total revenues. Sales of low-power CW lasers accounted for 0.8% of total revenues. Pulsed lasers sales accounted for 10.1% of total revenues.
QCW lasers sales accounted for 4.9% of total revenues. Other products revenues accounted for 13.3% of total revenues.
IPG Photonics reported gross margin of 56.8%, which expanded 90 basis points (bps) on a year-over-year basis. This can be attributed to improved cost reductions, manufacturing efficiency and favorable product mix that offset lower average selling price (ASP).
As a percentage of revenue, sales & marketing expenses expanded 20 bps. R&D expenses remained expanded 70 bps year over year. Moreover, G&A expenses increased 40 bps. Consequently, operating margin expanded 110 bps from the year-ago quarter to 39.3%.
Balance Sheet & Cash Flow
IPG Photonics ended the second quarter with $1.125 billion in cash & cash equivalents and short-term investments as compared with $1.18 billion reported in the previous quarter. Total debt outstanding was $47.2 million down from $48 million in the previous quarter.
The company generated $208.6 million in cash flow from operations up from the previous quarter's figure of $99.6 million.
During the second quarter, IPG Photonics announced new share repurchase authorization program worth $125 million, following the completion of the previous $100 million repurchase program.
IPG Photonics expects sales in the range of $360-$390 million for the third quarter of 2018.
Earnings are projected in the range of 1.80-$2.05 per share.
For 2018, management lowered the outlook. IPG Photonics now expect revenue growth in the range of 7-9%, down from the previous projection of 10-15%, citing currency exchange fluctuations.
Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, IPG has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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.
The company's stock is suitable solely for growth based on our style scores.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise IPG has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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