For years, IPG Photonics (NASDAQ:IPGP) has ridden the wave of rising demand for lasers among industrial customers. Moreover, the company's business structure gave it some advantages over laser-making peers Rofin-Sinar (NASDAQ: RSTI) and II-VI (NASDAQ:IIVI), producing much better share-price performance. Over the past year, though, IPG Photonics has seen its stock fall, and coming into Friday's fourth-quarter financial report, IPG Photonics shareholders were looking for only modest growth in its top and bottom lines. The company largely met expectations, but its guidance for the first quarter wasn't everything investors had wanted to see. Let's take a closer look at IPG Photonics' most recent results and what they say about the laser-maker's future.
IPG Photonics hits the mark
IPG Photonics' fourth-quarter results were largely favorable. Revenue grew 8% to $223.6 million, which almost exactly matched the consensus figure among investors. Net income growth also continued to slow, rising 8% to $60.7 million. Yet the resulting earnings of $1.14 per share were a nickel per share better than investors had expected to see.
Taking a closer look at IPG Photonics' results, perhaps the most interesting element of the report was that the company said it actually saw foreign-exchange impacts add to its bottom line. IPG Photonics pointed to foreign-exchange transaction gains sending earnings upward by $0.03 per share. It also reported a $0.04 per share boost from the fact that lawmakers reenacted the Research & Development Tax Credit at the end of 2015.
IPG Photonics' segment results were mixed. Materials processing sales picked up 9%, and the laser-maker said that welding and cutting applications added to growth while marking and engraving suffered declines. The company's other-market category saw declines of 11% in sales, with advanced applications revenue falling much more than growth in medical and telecommunications was able to offset. IPG Photonics said that double-digit percentage growth in China and Japan led its geographical mix, and more moderate growth in most of Europe was offset by weakness in Russia and Turkey. IPG Photonics' North American market saw crosscurrents from weakness in advanced applications and strength in materials processing.
Overall, IPG Photonics built up its book of business for the future. Backlog jumped 38% to $442.5 million, and backlogs expected to ship within the next year soared more than 75%.
CEO Dr. Valentin Gapontsev saw the results as being "solid," calling out IPG Photonics' full-year growth. As Gapontsev sees it, "These results demonstrate our continued leadership position in the fiber laser industry and the operating leverage in our business model."
Can IPG Photonics bounce back?
Gapontsev was upbeat about IPG Photonics' prospects this year. "We continue to be optimistic for 2016 and are managing the company to achieve double-digit growth for the year," the CEO said. "Our optimism is ground in our strong core products, our backlog, and many new product introductions planned this year." Those products include new industrial laser systems, laser projection systems, and various lasers in the ultra-fast pulsed, UV, and mid-IR categories.
As we saw last quarter, IPG Photonics' guidance didn't live up to expectations and stoked further fears about falling demand. Revenue of $200 million to $215 million is well below the consensus forecast of $225 million, and earnings of $0.88 to $1.03 per share compared unfavorably with current expectations for $1.09 per share. Given that II-VI topped expectations, downbeat guidance from IPG Photonics was disappointing, even though Rofin-Sinar also made similar cuts to guidance.
IPG Photonics investors weren't happy with the results, sending the stock down 8% in the first hour of trading following the announcement. To keep up with II-VI and maintain its advantages against Rofin-Sinar, IPG Photonics will need to find ways to overcome macroeconomic sluggishness and find growth for its innovative product offerings.