It has been about a month since the last earnings report for IPG Photonics (IPGP - Free Report) . Shares have added about 8.4% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
IPG Photonics Q3 Earnings & Revenues Lag Estimates
IPG Photonics Corporation reported third-quarter 2019 earnings of $1.07 per share, which lagged the Zacks Consensus Estimate by 9.2%. Further, the reported figure declined 42% from the year-ago quarter.
Revenues of $329.14 million fell 8% on a year-over-year basis, and missed the consensus mark of 337.45 million.
Unfavorable foreign-exchange movement limited earnings by 1 cent and revenues by $5 million.
Uncertainty in macroeconomic environment and geopolitical factors reduced demand for high-power CW lasers across China and Europe, which impacted the third-quarter top line.
However, Genesis acquisition contributed $20 million in total revenues in the reported quarter.
Revenues by Application
Materials processing (93% of total revenues) declined 8.4% year over year to $306.3 million, thanks to weakness in 3D printing and metal cutting applications.
Further, revenues from other markets (7%) improved 4.7% year over year to $22.9 million.
Revenues by Geography
Sales in United States and other North America (representing 21.6% of total sales) improved 32.1% year over year to $71.0 million.
However, sales in Eastern Europe/CIS (18.9%) declined 6.3% from the year-ago quarter to $62.2 million.
Moreover, sales in Germany (5.2%) slumped 20.8% from the year-ago quarter to $17.2 million.
Revenues from China (36.9%) fell 23.6% to $121.3 million.
Sales in Japan (6.6%) remained almost flat at $21.9 million year over year.
Sales in other Asia and Australia, and rest of the world (approximately 10.8%) collectively improved 5.4% year over year to $35.6 million.
Revenues by Product Group
Sales of high-power CW lasers (56.2% of total revenues) were down 18.7% from the year-ago quarter to $184.9 million, primarily owing to weaker-than-expected demand in China and Europe, and decline in ASPs (or average selling price).
However, management noted that demand for 10 kilowatt and 6 kilowatt ultra-high power CW lasers gained momentum.
Specifically, sales of 10 kilowatts or greater high power CW lasers grew 3% on a year-over-year basis.
Medium-power CW laser sales (3.6%) slumped 37.7% year over year to $11.9 million, on account of weakness in additive manufacturing and cutting.
Further, pulsed lasers sales (10.3%) of $33.9 million declined 4.4% year over year.
QCW lasers sales (3.8%) fell 31.7% year over year to $12.5 million.
However, system sales (10%) of $32.9 million soared 124% from the year-ago reported figure, primarily driven by synergies from Genesis acquisition.
Other revenues (16.1%), which include amplifiers, accessories, service, and parts, came in at $53.1 million, up 28.2% year over year.
IPG Photonics reported gross margin of 46.4%, contracting 840 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 390 bps on a year-over-year basis to 23.9%, primarily due to higher investments in sales, engineering and administrative expenses.
Consequently, operating margin contracted from 34.8% reported in the year-ago quarter to 22.5%.
Balance Sheet & Cash Flow
IPG Photonics ended the third quarter with $1.08 billion in cash & cash equivalents and short-term investments compared with $1.04 billion reported in the previous quarter.
Total debt (including current portion) came in at $42.6 million, down from $43.6 million in the previous quarter.
The company generated $91.8 million in cash flow from operations compared with the previous quarter’s reported figure of $58.1 million.
The company repurchased stock worth $24 million during the third quarter.
Guidance for Q4
For the fourth quarter, IPG Photonics anticipates sales in the range of $270-$300 million.
Earnings are projected in the range of 55-95 cents per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -29.27% due to these changes.
At this time, IPG has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, 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 F. 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. It's no surprise IPG has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.