It has been about a month since the last earnings report for IPG Photonics Corporation IPGP . Shares have lost about 4.7% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is IPGP 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 catalysts.
IPG Photonics Corporation reported fourth-quarter 2017 adjusted earnings of $1.86 per share, which beat the Zacks Consensus Estimate by 14 cents. The figure was better than the guided range of $1.55-$1.80. Earnings per share on a GAAP basis were 96 cents after taking into account the 2017 U.S. Tax Cuts and Jobs Act, which negatively impacted the EPS by 90 cents.
The strong year-over-year growth was driven by a 29% surge in sales from the year-ago quarter to $361.1 million. The figure beat the Zacks Consensus Estimate of $347 and also outperformed managements guided range of $330-$355 million.
Materials processing sales jumped 32% year over year and accounted for approximately 94% of total sales driven by strength in cutting and welding applications. Record laser sales for 3D printing applications also drove growth.
IPG is benefiting from strong adoption of fiber lasers over conventional lasers and non-laser cutting and welding equipment. According to management, secular transition to high powered products and increased electric vehicle battery production were the primary drivers behind the increased adoption of the high powered lasers.
The year-over-year sales growth was driven by robust performance in China, Europe, North America and Japan with strong demand across a variety of applications and industries. 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. China Continues to Drive Growth
China reported strong year-over-year sales growth of 47% and represented almost 44% of total sales. The robust performance was driven by strong sales of high-power CW lasers for cutting and welding applications. The company also benefited from dramatic rise in QCW laser sales, primarily related to consumer electronics welding applications.
Sales in Europe and the United States increased 18% and 16%, respectively, whereas it increased 2% in Japan from the year-ago quarter. In spite of the ongoing softness in sales in the region, growth was achieved on the back of increasing adoption of its products by Japan-based OEM's.
Europe benefited from strength in medium-power lasers for 3D printing applications, which increased as much as twice from the year-ago quarter. Moreover, pulsed laser sales for marking and engraving as well as high-power pulsed lasers for marking, engraving, and solar cell manufacturing continued to drive growth in the region.
Sales in the United States benefited from robust systems, high-power pulsed lasers sales and government business, all of which offset the softness in communications. Further, ILT acquisition contributed meaningfully to domestic sales. Product Details
Sales of high-power CW lasers continued to rise during the quarter and contributed significantly to revenues. Management noted that increase in demand for electric vehicle battery production led to rapid expansion of the laser-based welding market of the company. Moreover, management also noted that demand for 1 to 2 kilowatt and lower-end cutting applications continued to gain momentum.
Sales of QCW lasers increased 13% year over year driven by strong growth in fine welding for consumer electronics applications.
Medium-power CW laser sales increased 5% as increased demand for fine welding and 3D printing offset softness in cutting. Management noted that within the lower-end cutting applications, many OEMs are moving away from medium-power to high-power lasers at 1 and 1.5 kilowatt.
Pulsed lasers sales grew 20% year over year. Sales of new green and high-power pulsed lasers across a diverse set of applications drove results. Sales of low-power pulsed lasers for marking and engraving applications also contributed significantly.
Other products sales increased 26% year over year due to strong sales growth in systems and beam delivery products. Operational Details
IPG reported gross margin of 57.8%, which expanded 230 basis points (bps) on a year-over-year basis. This was primarily backed by improved manufacturing efficiency, cost reductions and favorable product mix that fully offset lower average selling price (ASP).
As a percentage of sales, sales & marketing expenses, R&D expenses and G&A expenses increased double digits on a year-over-year basis.
Operating income was $148 million, up 41% from the year-ago quarter. Balance Sheet & Cash Flow
During the fourth quarter, IPG generated $108 million in cash from operations and spent $27 million in capital expenditures. In the previous quarter, the company generated $164 million in cash from operations and used $56 million to finance capital expenditures.
IPG ended the quarter with $1.12 billion in cash & cash equivalents and short-term investments. Total debt outstanding was $49 million.
During the quarter, IPG bought back 60K shares for $13 million. Outlook
IPG expects sales in the range of $330-$355 million for the first quarter of 2018, reflecting 15-24% growth from the year-ago quarter. Management expects slowdown in spending related to consumer electronics investment cycle and typical seasonality in China to hurt revenues.
Earnings are projected in the range of $1.62-$1.87 per share, which reflects an increase of 17-36% from the year-ago quarter.
For 2018, management expects revenue growth in the range of 10.
IPG anticipates capital expenditure for 2018 in the range of $170-$190 million, or approximately 8 of revenues.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 11.1% due to these changes.
IPG Photonics Corporation Price and Consensus
IPG Photonics Corporation Price and Consensus | IPG Photonics Corporation Quote
At this time, IPGP has an average Growth Score of C, however its Momentum is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile 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.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise IPGP has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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