After a massive sell-off following its third-quarter results, laser maker IPG Photonics (IPGP 1.70%) came roaring back with its year-end report. The cause of the roller-coaster ride is the ongoing trade war between the U.S. and China that's causing weakness and significant currency impacts that have plagued the company's results.
Investors will soon get an update, as IPG Photonics is scheduled to report the financial results of its first quarter before the market opens on Tuesday, April 30. Let's recap the fourth-quarter results and look at recent challenges to see if they provide any insight into what investors can expect when IPG reports earnings.
When not bad is good enough
For the fourth quarter, IPG reported revenue of $330 million, a decline of 9% year over year. While that might not seem worth writing home about, it topped the high end of management's guidance and easily surpassed analysts' expectations. Earnings per share of $1.40 was in line with estimates.
It wasn't so much the numbers that shareholders were focused on but management's take on the challenging environment. In a refrain that has become familiar to IPG Photonics investors, the company said weakness in China and Europe persisted, though sales in Europe increased slightly sequentially, suggesting the worst may be over.
In conjunction with last quarter's report, IPG Photonics CEO Valentin Gapontsev said the "global macroeconomic and geopolitical challenges affecting the sector and our business have persisted into 2019. ... We expect pricing headwinds related to more aggressive competition in China to continue, exacerbating this challenging demand environment." This is clearly a reference to the trade war and slowing growth in China.
While there has been no official end to the ongoing conflict between Washington, D.C. and Beijing, there are signs that tensions are thawing. There have been a number of high-profile meetings between representatives of the two countries, prompting President Donald Trump to say that the two sides are nearing a trade deal, though the details are still being finalized.
On the conference call to discuss the results, Gapontsev pointed out, "Our [original equipment manufacturer] customers in China suggest cautious optimism regarding a midyear pickup in demand driven by government stimulus and continued infrastructure investment."
What the quarter could hold
While the company is signaling cautious optimism, its guidance is still set firmly in IPG's business reality. Management is forecasting revenue in a range of $290 million to $320 million, a decline of between 11% and 19% year over year. The company is also anticipating diluted earnings per share in a range of $1 to $1.20, which would represent a decline of between 38% and 48%.
Though investors don't want to fall victim to the quarter-to-quarter mind-set that's pervasive on Wall Street, understanding its sentiment can provide a bit of context. Analysts' consensus estimates are calling for revenue of $306.96 million, down about 15% year over year, and earnings per share of $1.10, a decline of 43%. In both cases, expectations are running squarely at the midpoint of management's guidance.
We'll have the full story when IPG Photonics reports earnings before the market opens on Tuesday, April 30.