Can IPG Photonics Get Back on Target?

Image source: IPG Photonics.

Laser-maker IPG Photonics (IPGP 1.21%) has played a key role in the revolution in the laser industry, and it has done a good job of capitalizing on the increased demand stemming from the growth in commercial applications for lasers in recent years. However, exposure to the manufacturing and industrial sectors means that IPG Photonics has to navigate the ups and downs of the global economy. Coming into Thursday's second-quarter financial report, IPG Photonics investors are hoping that the company can bounce back from disappointing results last quarter that hit the brakes on a record run for its stock. Let's take an early look at IPG Photonics to see what its earnings report is likely to include this time around.

Stats on IPG Photonics

Source: Yahoo! Finance.

Will IPG Photonics earnings help the stock bounce back?

In recent months, investors have grown more concerned about IPG Photonics earnings prospects. They've lopped a full quarter per share from their full-year 2016 projections, and they've made similar percentage reductions to their second-quarter estimates as well as their 2017 calls. The stock has taken a hit, falling 16% since mid-April.

A big part of the pressure on IPG Photonics came from its first-quarter financial report. The laser-maker managed to grow its revenue slightly, but it didn't produce all of the gains that investors had hoped to see, and net income fell 14%. The company's automotive welding, marking, and engraving business saw sales fall from year-ago levels, offsetting gains in cutting applications. Growth for the key materials processing unit slowed sharply, and IPG Photonics gave extremely poor guidance for the second quarter. The stock fell more than 15% in the single day following its report, and shareholders have since grown increasingly cautious about whether IPG can sustain its past level of growth.

Nevertheless, IPG Photonics has a lot of confidence in its long-term growth potential. At the company's investor day, executives gave a number of areas in which it expects to find new applications and boost its business. IPG said it remains the leader in industrial fiber lasers, and several emerging uses for those lasers have emerged that it can capitalize on. Specifically, IPG is focusing on the medical industry, where lasers are gaining acceptance, and the projection, display, and entertainment business, which is expected to grow worldwide at a strong pace. Laser use in defense and microprocessing also represents a key opportunity for expansion for IPG Photonics.

How IPG Photonics is responding to recent pressure

IPG Photonics has already taken small steps forward in order to execute on some of these potential growth initiatives. In May, the company announced its acquisition Menara Networks, which it believes will help give it more penetration in the optical pluggable systems market. The $46.8 million purchase will allow IPG to offer more integrated telecommunications solutions to its current and potential customers, and with Menara's products used by cable multi-system operators, carriers, and data centers, IPG hopes that it will be able to cross-sell Menara's major customers with products of its own to bolster its own revenue. As CEO Dr. Valentin Gapontsev said, the acquisition "is in line with our strategy to make bolt-on acquisitions that provide us with the talent, technology, and products to enter large complementary markets."

One key for IPG Photonics will be whether customers start spending money on capital expenditures. The global slowdown has reduced some customers' willingness and ability to make laser purchases, and IPG has seen that slump affect its results. When that trend reverses, pent-up demand could lead to a much stronger growth trajectory for IPG.

In the IPG Photonics earnings report, investors should watch closely to see if the company can surpass the relatively weak guidance it gave last quarter. If the warning turns out to have been a false alarm, then IPG will likely regain some of its lost ground in its stock price. However, if the report confirms investors' fears, then further losses are a strong possibility for IPG Photonics.