While Motley Fool Hidden Gems recommendation Rofin-Sinar (NASDAQ:RSTI) makes smooth laser beams, its operating results can be anything but. This latest quarter was no exception, as revenues rose by 11%, but earnings flattened at $0.73 per share. Stock-option charges lopped off $1.5 million from net earnings, or about $0.04 per share.
Rofin-Sinar makes industrial-grade lasers primarily used for cutting, welding, and marking, which it delineates as the macro and micro segments of its business. On the macro side -- cutting and welding -- sales rose nearly 18% to $54.2 million, while on the micro (marking) side, they rose 15.6% to $57.6 million, accounting for more than 51% of sales, as is typical. Macro products come with lower profit margins, so net income only inched up to $11.5 million in the quarter, essentially unchanged from the $11.4 million recorded last year.
The laser maker has generally been performing well over the past 12 months. Trailing revenues have been steadily trending upward, particularly over the past six months. However, sales did fall sequentially in this quarter, which is typically its slowest.
Laser competitor Coherent (NASDAQ:COHR), while delinquent in its regulatory filings because of a probe into its stock options program, had a similar tale of a slower first quarter -- though unlike Rofin-Sinar's, its results came in under analyst expectations. GSI Group (NASDAQ:GSIG), which should be reporting earnings soon, is expected to reflect that industry condition as well.
The market didn't initially like Rofin-Sinar's numbers, dropping its stock as much as 9% during the day, but there was encouraging news in the report. Sales to Europe and Asia grew a strong 18%, which more than helped to offset the weaker 7% rise in North American sales. In particular, Europe accounted for 54% of revenues, and CEO Gunther Braun foresees the company focusing on "emerging markets and industries." Meanwhile, board chairman Peter Wirth said he is looking to overseas markets to carry the company until North American conditions stabilize. Moreover, the weak dollar has helped to boost results overseas.
Rofin-Sinar has more than $11 per share in cash and relatively little debt. Braun said investors can expect the laser maker to make an acquisition sometime this year, as well as buy back shares. But unless the stock pulls back, the latter would seem a pricey use of the money. It's still trading at the upper levels of its recent highs, and while the order backlog and other metrics continue to point to a strong balance sheet, Rofin-Sinar shares seem to me a bit high-priced for either investors or the company to buy at this time.
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Rofin-Sinar is a recommendation of Motley Fool Hidden Gems. A 30-day guest pass lets you see why senior Fool analyst Bill Mann thinks the laser maker is a "first-tier" pick and is actually a good buy at these prices.
Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
