IPG Photonics Tops $1 Billion in Annual Sales, Finishes 2016 Strong

By Dan Caplinger Markets Fool.com

IPG Photonics (NASDAQ: IPGP) has been at the forefront of the revolution in laser technology that has worked its way across the business world over the past several years. By identifying a wide array of potential applications for lasers, IPG Photonics has used its competitive advantages in manufacturing to make a name for itself in the industry. Coming into Tuesday's fourth-quarter financial report, IPG Photonics shareholders were fully expecting solid growth in profit and sales from the laser manufacturer, and IPG didn't disappoint on that score. Moreover, it sees good conditions continuing into 2017.

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Let's look more closely at IPG Photonics to see how it did and what's ahead for the company going forward.

Image source: IPG Photonics.

IPG builds momentum

IPG Photonics' fourth-quarter results continued the string of record results that the laser manufacturer has posted. Sales soared 25% to $280.1 million, and that was well ahead of the 21% growth pace that most investors were looking to see. Net income climbed by nearly a quarter to $75.1 million, and that produced earnings of $1.39 per share, which fell just $0.01 short of the consensus forecast among those following the stock.

Looking more closely at the numbers, a couple of things stood out for IPG Photonics. The first is that the company set a new record for annual sales, climbing just above $1 billion for the full 2016 year. The other was that there was a shift in backlogs away from frame agreements toward orders with firm shipment dates. A 23% rise in firm shipment date orders partially offset a 27% decline in frame agreements expected to ship within a year, and IPG said that it has booked more new frame agreements in January.

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IPG Photonics' business segments confirmed the trends that the company has seen in recent quarters. Solid demand for cutting and micro-materials processing helped send overall materials processing sales up by 24% compared to the year-ago quarter, and sales to other markets were up by nearly half due to acquisition-led growth in telecom as well as sharper gains from IPG's continuing business. Medical and advanced applications saw a slight pullback. In terms of products, quasi-continuous wave lasers saw sales double, and high-power fiber lasers powered ahead by more than a third to set another new record. Yet medium-power, low-power, and laser systems posted flat sales, and pulsed lasers only managed modest growth.

From a geographical perspective, IPG Photonics pointed to China, Europe, Russia, and Japan as the primary drivers of growth. It said North American sales were slightly higher as well.

CEO Dr. Valentin Gapontsev was very happy with how far his company has come. "IPG delivered another year of record results in 2016," Gapontsev said, "exceeding $1 billion in sales for the first time as we celebrate our 10th anniversary as a public company." The CEO noted that sales and earnings were above its previous guidance ranges, and he emphasized the strength in materials processing in driving IPG higher.

What's ahead in 2017 for IPG Photonics?

IPG Photonics sees plenty of upside for the laser business in 2017. Gapontsev commented: "We are building on strong momentum as we capitalize on new growth opportunities with existing and new OEMs and end users. In addition, we are enthusiastic about the new innovative products we are bringing to market." The company believes that it can keep building on its competitive advantages throughout the year and beyond.

With that enthusiasm came good guidance for the beginning of 2017. IPG Photonics said it expects revenue of between $245 million and $260 million in the first quarter, and that range is entirely above the consensus forecast among investors for that period. Earnings of $1.10 to $1.25 per share would generally look better than the $1.13 per share prediction from those following the stock.

IPG Photonics stock didn't immediately react to the news, but its shares have climbed to new all-time highs over the past month in anticipation of a turnaround. IPG has thus far been successful in taking advantage of good industry conditions, and if it can keep doing so, then its fundamental results should continue to build up its reputation as a key player in the laser industry for years to come.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends IPG Photonics. The Motley Fool has a disclosure policy.