The use of lasers has become almost ubiquitous, with applications ranging from telecom and materials processing to manufacturing and healthcare procedures. IPG Photonics (NASDAQ:IPGP) has capitalized on the rise in importance of lasers, with its innovative technology and vertically integrated business operation building up an impressive competitive advantage over its competitors. Yet coming into Tuesday morning's second-quarter financial report, some IPG Photonics shareholders were spooked about the economic weakness in China and its potential impact on the laser maker's business. At least for now, though, IPG Photonics continues to fire on all cylinders, with even better growth rates than investors had expected to see. Let's take a closer look at how IPG Photonics is doing at mid-year and whether the future remains equally bright.
IPG Photonics can't miss
IPG Photonics produced strong results on all counts during the second quarter. Revenue of $235.1 million was up 22% from year-ago levels, easily topping the 15.5% growth rate that most investors had expected IPG Photonics to post. On the bottom line, net income climbed an even steeper 27% to $61.3 million, and that produced earnings of $1.15 per share, beating the consensus estimate of $1.11. With foreign exchange holding back the bottom line by $0.04 per share, IPG Photonics did a solid job of doing better than even its bullish investors thought it would.
On a business-by-business basis, it continued to improve performance nearly across the board. The high-power fiber laser segment produced some of the fastest growth in the company, where sales climbed 27%, and IPG Photonics also said that growth in medium-power, low-power, and quasi-continuous wave lasers also helped contribute to its positive results. Materials processing revenue for the quarter climbed 21%, with expanding sales both from its existing customer base and from new original-equipment manufacturing clients. The catch-all category for other applications, which includes medical, telecom, and advanced applications, saw sales soar 54%, and although its influence on the overall company is relatively small, revenue from the segment added up to 5% of IPG Photonics' total sales.
IPG Photonics had somewhat surprising news in its geographical business mix. Bucking the trend that we've seen elsewhere among industrial companies, Asia was the strongest source of sales for the company. IPG Photonics had lower levels of growth in Europe and North America, but it has been unusual to see the Asia-Pacific region produce gains for companies given the economic slowdown in China and elsewhere in the area.
CEO Dr. Valentin Gapontsev made his enthusiasm about the company clear, highlighting its record quarterly revenue figures. "We continue to expand market penetration of fiber lasers in materials processing applications," Gapontsev said, and he attributed IPG Photonics' earnings growth to "our increasing scale, continued innovation, and operating efficiencies."
Can IPG Photonics keep aiming higher?
IPG Photonics also gave investors good news in the form of favorable guidance. It set a goal of sales between $235 million to $250 million for the third quarter, which would be far better than the 15% growth to $231 million that investors currently expect. Similarly, IPG Photonics thinks it will earn between $1.15 to $1.30 per share, with current consensus forecasts at the very bottom of that range.
Gapontsev sees plenty of reasons why IPG Photonics should keep growing. He noted that book-to-bill ratios continue to exceed the key level of 1, promising growth in the company's pipeline of business. Moreover, in Gapontsev's words, "As we enter the second half of 2015, we remain focused on establishing partnerships with new OEMs and end-users, deepening our relationships with existing customers, and developing the next generation of fiber laser-based products to address new markets and applications."
IPG Photonics investors were ecstatic about the news, sending shares of the stock up nearly 9% in the 45 minutes of pre-market trading following the announcement. With the company's release essentially rebutting rumors that IPG Photonics was in danger of losing vital business, investors apparently breathed a sigh of relief and refocused on the laser maker's promising prospects for the future.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of IPG Photonics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.