Why Is IPG (IPGP) Down 25.2% Since Last Earnings Report?

It has been about a month since the last earnings report for IPG Photonics (IPGP). Shares have lost about 25.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is IPG due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

IPG Photonics Posts Q4 Loss, Revenues Decline Y/Y

IPG Photonics Corporation reported fourth-quarter 2019 loss of 8 cents per share, against the year-ago quarter’s reported earnings of $1.40 per share.

Unfavorable foreign-exchange movement, higher inventory, and impairment charges pertaining to restructuring, goodwill and other assets, weighed on the bottom line by 99 cents.

Revenues of $306.6 million fell 7.1% on a year-over-year basis. Unfavorable foreign-exchange movement offset revenues by $2 million.

Uncertainty in macroeconomic environment and geopolitical factors reduced demand for high-power CW lasers across China and Europe, which impacted the fourth-quarter revenues. However, Genesis acquisition contributed $19 million in total revenues in the reported quarter.

Revenues by Application

Materials processing (90.1% of total revenues) declined 10.5% year over year to $276.3 million.

Revenues from other applications (9.9%) improved 42.4% year over year to $30.4 million.

Revenues by Geography

Sales in United States and other North America (representing 23.9% of total sales) improved 30.5% year over year to $80.9 million.

However, sales in Eastern Europe/CIS (18.7%) declined 19.5% from the year-ago quarter to $57.3 million. Moreover, sales in Germany (7.1%) slumped 10% from the year-ago quarter to $21.9 million.

Revenues from China (30.2%) fell 21% to $92.6 million. Sales in Japan (5.5%) declined 36.8% to $16.9 million year over year.

Sales in other Asia and Australia (approximately 10.4%) improved 15.4% year over year to $32 million.

Revenues from rest of the world (1.6%) soared 513.5% to $4.9 million.

Revenues by Product Group

Sales of high-power CW lasers (51.3% of total revenues) were down 15.2% from the year-ago quarter to $157.4 million, primarily owing to weaker-than-expected demand in China and Europe, and decline in ASPs (or average selling price).

However, management noted that sales of 6 kilowatt or greater high power CW lasers represented 50% of all high power CW laser sales. Specifically, sales of 10 kilowatts or greater high power CW lasers improved 30% on a year-over-year basis.

Medium-power CW laser sales (4.5%) slumped 32.4% year over year to $13.7 million. Further, Pulsed lasers sales (10.3%) of $31.6 million declined 32.5% year over year.

However, QCW lasers sales (4.5%) improved almost 14% year over year to $13.8 million.

Moreover, Laser and Non-Laser system sales (12%) of $36.7 million surged 68.9% from the year-ago reported figure, primarily driven by synergies from Genesis acquisition.

Other revenues (17.4%), which include amplifiers, accessories, service, and parts, came in at $53.4 million, up 22.8% year over year.

Operating Details

IPG Photonics reported gross margin of 40.5%, declining from 50.5% reported in the year-ago quarter. This can be attributed to higher manufacturing cost and lower revenue base.

As a percentage of revenues, operating expenses expanded from 21.4% in the year-ago quarter to 40.4%, primarily owing to higher investments in sales, engineering and administrative expenses.

Consequently, operating margin contracted from 29.1% reported in the year-ago quarter to 0.1%.

Balance Sheet & Cash Flow

As of Dec 31, 2019, IPG Photonics had $1.18 billion in cash & cash equivalents and short-term investments compared with $1.08 billion reported in the previous quarter.

Total debt (including current portion) came in at $41.7 million, down from $42.6 million in the prior quarter.

The company generated $129.9 million in cash flow from operations compared with the previous quarter’s reported figure of $91.8 million.

The company repurchased stock worth $15 million during the fourth quarter.

Guidance for Q1

For first-quarter 2020, IPG Photonics anticipates sales in the range of $220-$250 million.

Earnings are projected between break-even to 30 cents per share.

Management noted that the guidance takes into account the negative impact from the coronavirus outbreak. The company has reduced revenue guidance by $45 million and earnings by 45 cents owing to the coronavirus outbreak.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -75.78% due to these changes.

VGM Scores

Currently, IPG has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise IPG has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.