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Cognex Delivers Record Growth -- and Investors Say "Meh"

By Danny Vena - Feb 20, 2018 at 8:51AM

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You'd think that record annual revenue, net income, and earnings per share would be reason to celebrate, but investors expected more.

After delivering on what it promised would be a monster quarter in its 2017 third quarter, machine-vision leader Cognex Corporation (CGNX 2.69%) felt the pressure to produce more of the same. While the company had an enviable fourth quarter, it paled in comparison to the blockbuster results just three months earlier. Investors seemed to say, "What have you done for me lately?" as the stock fell over 11% in after-hours trading.

For the just-completed fourth quarter, Cognex delivered record revenue of $180.4 million, up an impressive 39% year over year, beating analysts' consensus estimates of $178.76 million and at the top end of the company's forecast of a range of $170 million to $180 million.

On the bottom line, however, the company generated a net loss of $26.9 million compared to net income of $38.3 million in the prior-year quarter.

A robotic arm on an assembly line.

Robotics guided by machine vision are being used in a growing number of complex manufacturing tasks. Image source: Getty Images.

The taxman cometh

Recent U.S. tax legislation resulted in a one-time charge of $83 million, or $0.46 per share. Excluding that charge from the results would have produced net income of $56.1 million and earnings per share of $0.25, in line with analyst expectations.

Metric

Q4 17

Q4 16

Year-Over-Year Change

Revenue

$180.4 million

$129.3 million

39.5%

Operating margin

29%

31%

 --

Adjusted net income -- continuing operations

$56.1 million

$38.3 million

46%

Earnings per diluted share

$0.25

$0.20

25%

Data from SEC filings. Chart by author.

Cognex reported that sales growth came from a variety of industries, including consumer electronics, logistics, and automotive. The consumer-electronics industry posted substantial gains in the previous quarter due to several large orders, and returned to a more normal level in the current quarter.

Cognex is investing heavily in research and development (R&D) to spur the creation of new technology. R&D spending surged 39% year over year due to additional engineering resources and product-development costs. The company said it will add additional engineering staff to gear up for what it sees as a growing opportunity.

Sales, general, and administrative expense also jumped, increasing 41% compared to the prior-year quarter. This was due to increased sales resources and higher employee-related costs. The company said it's expanding its sales force in preparation for expected growth in years to come.

Robert J. Willett, Chief Executive Officer of Cognex said:

Our 2017 achievements reflect the hard work of Cognoids around the world and the entrepreneurial spirit that is an integral part of our corporate culture. We celebrate our success while staying focused on the long term. We believe the markets for our products continue to have significant growth potential as manufacturers look to automate a broadening range of industrial tasks.

Looking ahead

Earlier in the day, Cognex announced that its board of directors had declared a quarterly dividend of $0.045 per share, payable on March 16, 2018 to shareholders of record at close of business on March 2, 2018. Additionally, the company authorized an additional share buyback of $150 million. This comes on the heels of a $100 million authorization that still has $45 million remaining. 

For the upcoming first quarter, which is typically the slowest of the year, Cognex is forecasting revenue in a range of $165 million to $175 million, which will represent between 19% and 26% year-over-year growth. This is in line with consensus estimates for the quarter, as analysts are expecting revenue of $173.41 million. 

Cognex continues to see a future where manufacturers seek to automate an ever-growing list of industrial tasks. The company's machine-vision technology will play a central role in that transition.

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