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Will Rofin-Sinar Earnings Keep Activist Investors at Bay?

By Dan Caplinger – Feb 1, 2016 at 4:46PM

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The laser-maker faces challenges from private equity shareholders seeking big changes.


Image source: Rofin-Sinar Technologies.

Laser maker Rofin-Sinar Technologies (RSTI) has been at the center of controversy lately. Activist investors have criticized its underperformance compared to peers such as IPG Photonics (IPGP -1.30%), and they've launched a proxy battle to take greater control of Rofin-Sinar going forward. In that light, what Rofin-Sinar says in its fiscal first-quarter financial report on Thursday will be crucial, as it will guide shareholders in deciding whether the company's current management are on the right path toward growth. Let's take a closer look at what's been happening with Rofin-Sinar lately and whether investors can expect better times ahead.

Stats on Rofin-Sinar Technologies

Analyst EPS Estimate

$0.23

Change From Year-Ago EPS

4.5%

Revenue Estimate

$116.5 million

Change From Year-Ago Revenue

(4.8%)

Earnings Beats in Past 4 Quarters

2

Data source: Yahoo! Finance.

What will Rofin-Sinar's earnings tell investors?
In recent months, investors have gotten a lot less comfortable with Rofin-Sinar's earnings prospects. Projections for the fiscal first quarter have gotten slashed by a third, and investors are also less comfortable with initial growth projections for the full 2016 fiscal year. The stock has remained under pressure, falling another 14% since late October.

Rofin-Sinar's fiscal fourth-quarter results back in November were what set investor pessimism in motion. The company actually had a reasonably strong quarter, with net income climbing by 24% and earnings topping the consensus forecast among investors. Yet sales contracted from the year-earlier quarter, and the strength of the U.S. dollar also held back the company from what would otherwise have been better performance. That's a factor that has also hit IPG Photonics and other laser-making peers. Of more immediate concern was Rofin-Sinar's downbeat guidance for the fiscal first quarter, even though the company's full-year predictions were largely in line with what investors had expected.

The fight between Rofin-Sinar and SilverArrow Capital Investors has escalated dramatically in recent months. Back in October, SilverArrow proposed a slate of three candidates to join the board of directors. It then said in November that it had been disappointed to find that Rofin-Sinar added a new director rather than waiting until the annual shareholder meeting to name her to the board, asserting that the decision must have been a defensive measure in light of its own nomination of a slate of directors to the board.

Rofin-Sinar responded in January with an open letter to shareholders, taking the position that it had worked with SilverArrow to propose a compromise where it would appoint one of SilverArrow's candidates to the board. Rofin-Sinar said that SilverArrow hadn't been interested in any such compromise.

In late January, SilverArrow responded with a letter of its own, challenging the process whereby Rofin-Sinar evaluated its three candidates and asserting that Rofin-Sinar's board is only interested in keeping itself entrenched at the company. SilverArrow also pointed to poor performance compared to Rofin-Sinar's peers and numerous other shortcomings, including what it called a "flawed corporate structure" and a "misguided capital allocation strategy." At this point, the two sides appear to be so far apart that only a final shareholder vote is likely to resolve the issue. So far, Rofin-Sinar hasn't filed a definitive proxy statement with the Securities and Exchange Commission, but last year's annual meeting occurred in March, so it could be the better part of two months more before investors have a final answer on the matter.

For now, investors should look to the Rofin-Sinar report to see if the company has managed to avoid further deterioration in its fundamental performance. IPG Photonics and some of its peers in the laser business have done quite well, and Rofin-Sinar can't afford to fall behind. Otherwise, activist investor efforts to come up with an alternative course forward could look all the more compelling.

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. 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.

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Stocks Mentioned

Rofin-Sinar Technologies Inc. Stock Quote
Rofin-Sinar Technologies Inc.
RSTI
IPG Photonics Stock Quote
IPG Photonics
IPGP
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