The laser industry has been front and center recently, as companies in many different sectors aim to use lasers to enhance efficiency and make their production processes more robust.
Rofin-Sinar Technologies (NASDAQ:RSTI) has fought against competitors like IPG Photonics (NASDAQ:IPGP) for its share of the booming laser business, but coming into Thursday's fiscal fourth-quarter financial report, Rofin-Sinar investors weren't entirely sure what to expect, as they believed that the company could grow its earnings even as revenue slid from year-ago levels.
Rofin-Sinar's results didn't answer all of the concerns that investors have, but they nevertheless surpassed what analysts had expected to see, and the prospects for future growth appear strong. Let's look more closely at how Rofin-Sinar Technologies did during the quarter and what the results say about the laser maker's future.
Rofin-Sinar survives a revenue drop to improve its earnings
Rofin-Sinar's fiscal fourth-quarter results were mixed, reflecting some of the cross-currents in the industry. Revenue fell about 3% to $142 million, but investors had actually expected a decline of more than twice that amount. On the bottom line, net income jumped 24% to $14.8 million, and that produced earnings of $0.52 per share, $0.02 better than the consensus forecast among those following the stock.
Looking more closely at Rofin-Sinar's results, the strong dollar once again played a huge role in holding back growth. The company said that currency impacts, especially against the euro, cost Rofin-Sinar $13.7 million in sales, which would have resulted in nearly 7% rise in adjusted revenue on a currency-neutral basis. Currency implications also played a role in the company's geographical segments, as North American sales stayed flat for the quarter and Europe managed to hold its own as well despite the falling euro. Yet Asian revenue dropped 7%, reversing some of the gains investors had seen in the previous quarter.
Rofin-Sinar's major segments showed more consistent pressure than in past quarters. Sales from the marking and micro applications business fell nearly 6%, making up just less than half of the company's overall revenue. Macro applications posted more modest losses of 3%, and only the components segment's climb of 8% helped salvage some positive results for Rofin-Sinar's top line during the quarter.
CEO Thomas Merk was nevertheless happy that Rofin-Sinar did so much better than expected. "We continue to see the positive effects of our cost optimization strategies," Merk said, "including our consolidation efforts, and were able to further improve gross profit margin to 40% for the quarter." Merk pointed to growth in its third-generation high-power fiber laser business, an area in which IPG Photonics has enjoyed great success, as well as ultrashort pulse lasers as being strong indicators of future potential.
Can Rofin-Sinar improve even more?
Still, Rofin-Sinar faces some headwinds. Order entry fell 9% to $128.8 million during the quarter, and that brought the company's backlog to $144.3 million. The strong dollar hit the value of the backlog as well, which the company said would have been almost 10% higher on a constant currency basis. Nevertheless, the book-to-bill ratio of 0.91 for the quarter showed some weakness.
Rofin-Sinar's guidance for fiscal 2016 was consistent with what investors were looking to see, albeit with slightly less optimism. The revenue range of $525 million to $545 million includes the current $540 million consensus forecast among investors, and similarly, the company's earnings range of $1.70 to $1.90 per share surrounds the current $1.85 per share projection. Yet Rofin-Sinar said that the fiscal first quarter's traditional seasonal slowness would keep results below what investors had expected, with sales of $113 million to $118 million and earnings of $0.19 to $0.24 per share. Those comments are similar to what IPG Photonics told its investors, pointing to seasonal weakness of its own.
Still, Rofin-Sinar has confidence in its long-term performance. It announced a $50 million buyback program to run for the next year and a half, and Merk said that it is in a good position to balance spending on acquisitions and organic growth with returning capital to shareholders.
In the long run, investors can expect Rofin-Sinar to continue to follow its strategic plan and carve up the growing laser market with IPG Photonics and other players in the industry. With plenty of growth to go around, Rofin-Sinar has the potential to take its fair share of business and thrive.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends IPG Photonics. The Motley Fool recommends Rofin-Sinar Technologies. 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.