IPG Photonics Corp. Earnings: These Lasers Are Right on Target

By Markets Fool.com

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Laser components specialist IPG Photonics (NASDAQ: IPGP) reported second-quarter results on Thursday afternoon. Here's what you need to know about this solid quarterly update.

IPG Photonics' Q2 results: The raw numbers

Q2 2016 Actuals

Q2 2015 Actuals

Growth (Year over year)

Revenue

$252.8 million

$235.1 million

7.5%

Net Income Attributable to IPG Photonics

$67.1 million

$61.3 million

9.5%

GAAP EPS (diluted)

$1.25

$1.15

8.7%

Source: IPG Photonics.

What happened with IPG Photonics this quarter?

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IPG's strong revenue growth rested on rising orders in its materials processing and high-power laser segments.

  • Sales of high-power lasers, which accounted for 56% of IPG's total revenues in the second quarter, rose 7% year-over-year to $141.4 million. Clients are snapping up enough tools for welding and cutting applications to overcome a 20% decline in average selling prices per kilowatt of laser power.
  • Telecom sales drove a 28.9% revenue increase in IPG's "other markets" division. The recent acquisition of communications signaling expert Menara Networks was responsible for most of this boost, while one medical applications client submitted a significantly lower volume of laser orders.
  • IPG Photonics saw sales increasing in each of its geographical segments, led by double-digit revenue growth in North America and China.
  • The company also announced a new share repurchase program, limited to $100 million over the next two years and aimed at controlling the dilutive effects of share-based compensation. IPG is explicitly not looking to reduce its share count, just keeping that figure in check.

Management offered the following high-level guidance targets for the third quarter:

  • Revenue should land near $252 million, roughly 3.5% above the comparable period in 2015.
  • Earnings are seen rising 1%, landing near $1.20 per diluted share.

What management had to say

In the second half of 2016, IPG's management plans to build on its existing strengths with a range of brand-new products. Many of these will be targeted at markets outside the company's current wheelhouse, according to CEO Valentin Gapontsev:

As we enter the second half of 2016, we remain focused on improving our existing products, launching innovative new products and applications that broaden IPG's presence beyond our core markets, strengthening our technology lead and positioning IPG to expand our business with existing and new OEMs.

Looking ahead

IPG Photonics has been growing much faster than the laser industry at large in recent years. The company is finding new markets on a regular basis, while rivals Rofin-Sinar Technology (NASDAQ: RSTI) and Coherent (NASDAQ: COHR) have struggled to expand their horizons.

The company is executing crisply at the moment, and has been doing so for years. But share prices have only gained 40% over the last five years, while sales doubled and free cash flows increased more than fourfold.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends IPG Photonics. Try any of our Foolish newsletter services free for 30 days.

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