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Rofin-Sinar Overcomes Sales Weakness to Boost Profits

By Dan Caplinger – Feb 4, 2016 at 11:42AM

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The laser maker said the timing of one order played a big role in its results.

Laser-cut pendant. Image source: Rofin-Sinar Technologies.

Competitive conditions in the laser industry have gotten fiercer lately, and Rofin-Sinar Technologies (RSTI) has had to work hard to keep up with II-VI (IIVI 3.93%) and other peers in the market. Coming into Thursday's fiscal first-quarter financial report, Rofin-Sinar investors were bracing for falling sales, but they hoped that the company would eke out at least minimal earnings growth. Rofin-Sinar's revenue fell short even of those gloomy expectations, but the laser maker managed to keep its bottom line moving higher. Let's take a closer look at the latest from Rofin-Sinar Technologies to see whether there are signs of how the company will fare in 2016.

Rofin-Sinar takes a top-line hit
As we've seen in previous quarters, Rofin-Sinar's fiscal first-quarter results were mixed. Revenue dropped 8% to $112.5 million, which was substantially worse than the 5% decline that most investors were expecting from the laser maker. Net income climbed 6% to $6.55 million, and that produced earnings of $0.23 per share, matching the consensus forecast among investors.

Taking a closer look at Rofin-Sinar's results, the laser maker specifically called out costs related to its proxy contest with activist investor group SilverArrow Capital Investors as preventing the company from posting even better bottom-line results. Rofin-Sinar's earnings would have come in at $0.25 per share without non-recurring costs, most of which it said were due to SilverArrow.

In addition, the strong dollar held back revenue growth, and Rofin-Sinar said that weakness in the euro and other currencies cost it $8.5 million in sales. That wouldn't have been enough to make revenue climb from year-ago levels, but it would have offset most of its losses. Sales in North America rose 6%, improving from its flat performance last quarter, but revenue declined in Europe and Asia even after taking currency-related headwinds into account.

Rofin-Sinar's major segments performed in line with what we've seen in previous quarters. The marking and micro applications business did the worst, posting a 17% sales drop, and the macro applications arena weighed in with a more modest 5% decline. The components segment once again stood out with impressive 14% gains, accelerating from its past growth rates.

CEO Thomas Merk put the results in context. "Our strategy to drive cost improvements and generate shareholder value continues to gain traction," Merk said. "Sales in this seasonally slower quarter were broadly in line with last year excluding the impact of the strong U.S. dollar and were negatively affected by the timing of revenue recognition for one order."

What's ahead for Rofin-Sinar?
Rofin-Sinar also hopes that it can stay ahead of II-VI and its peers with its research and development. Merk specifically discussed Rofin-Sinar's femtosecond-laser filament cutting process and its 2.5 kilowatt fiber laser module as having solid potential, and expected commercial launches later in 2016 will add to the benefits of R&D spending that has also helped produce cost-saving design improvements.

Still, Rofin-Sinar is vulnerable to economic woes. The company saw its order entry fall more than 20% to $96.9 million, in part because it anticipates cancellations from two Chinese customers affected by the poor economy there. That sent the book-to-bill ratio down all the way to 0.86 and sent its backlog down more than 10% since September to $128.7 million.

In response, Rofin-Sinar cut its guidance for fiscal 2016, reducing its expected revenue range by between $20 million and $30 million to $495 million to $525 million. That will correspondingly reduce its earnings for the full year. For the fiscal second quarter, Rofin-Sinar hopes to see sales of $115 million to $121 million and earnings of $0.20 to $0.26 per share. Both figures are well below what investors were expecting to see in the current quarter.

Rofin-Sinar shares reacted poorly to the news, falling 5% in the opening minutes of the session following the announcement. Until the company can keep up with the growth that II-VI and other laser makers have experienced recently, it will be hard for Rofin-Sinar stock to regain some of its lost ground.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends II-VI and 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.

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