IPG Photonics Stays on Target With Red-Hot Growth

By Dan Caplinger Markets Fool.com

The laser industry has seen a lot of innovation in recent years, and IPG Photonics (NASDAQ: IPGP) has worked hard to keep its edge in a rapidly changing market. As a key provider of fiber lasers, IPG Photonics has a lot at stake in pushing for the success of new technology, and it has thus far been successful in helping customers see the value and competitive advantages of its products compared to those of its rivals.

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Coming into Tuesday's first-quarter financial report, IPG Photonics shareholders wanted the company to show once again that it could keep up a breakneck pace in its top-line and bottom-line growth. As we've seen before, IPG was able to meet high expectations and exceed them, pushing the stock to new all-time highs. Let's take a closer look at IPG Photonics and what its results say about its long-term future.

Image source: IPG Photonics.

IPG keeps firing up growth

IPG Photonics' first-quarter results showed accelerating growth from the laser maker. Revenue jumped 38% to a record $285.8 million, which was far better than the 23% rise that most investors had expected to see. Net income rose by more than half to $74.9 million, and that produced earnings of $1.38 per share. The bottom-line figure compared quite favorably to the consensus forecast for $1.20 per share in earnings.

Taking a closer look at the report, the typical relationships between IPG Photonics' business segments continued to play out. The key materials processing segment saw sales jump by a third from year-ago levels, and the company pointed out especially strong results in cutting and welding applications that helped the unit grow more quickly. Demand in China was particularly noteworthy, posting growth of almost 90% on a year-over-year basis. Meanwhile, sales to other markets more than doubled, and IPG Photonics said that strength in the telecom and advanced applications markets helped support high growth rates.

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Looking at various products, sales of quasi-continuous wave lasers jumped by almost 150%, as percussion hold drilling activity and welding-related sales helped push demand higher. Sales of high-powered lasers were up more than 40%, again benefiting from customers wanting to do cutting and welding work. Medium- and low-powered lasers remained relatively small markets, although relative strength in pulsed lasers kept them relevant as contributors to growth for IPG Photonics.

Geographically, China was the biggest growth market, now making up more than two-fifths of IPG's total business. Growth in North America was slower but still substantial, but the Japanese and German markets were stagnant to lower compared to other areas.

CEO Dr. Valentin Gapontsev was ecstatic about the results. "We achieved record orders during the quarter," Gapontsev said, "with a book-to-bill ratio greater than 1." The CEO said that current backlogs are quite attractive and point to further growth ahead.

Can IPG Photonics stay hot?

IPG Photonics thinks that the way 2017 started bodes well for its full-year results. As Gapontsev put it, "The magnitude of our first quarter outperformance and second quarter revenue guidance has exceeded our expectations when compared to those assumed in our annual guidance." As a result, IPG boosted its projections for the full year, although the CEO cautioned against assuming an accelerated growth track from current levels.

Specifically, IPG Photonics expects revenue of $320 million to $340 million in the second quarter. That should produce earnings of $1.50 to $1.70 per share, and both of those numbers are far above the consensus forecast among those following the stock. For the full year, the company merely said that the extent to which IPG will top expectations for the first half of 2017 should be reflected in full-year numbers, with the caveat that visibility in the second half of the year is limited to some extent.

IPG Photonics investors shared the company's enthusiasm, and the stock jumped almost 8% in the regular trading session on Tuesday following the release, hitting a new record high. As long as the laser industry keeps finding ways to make itself relevant to the broader corporate community, IPG Photonics should remain in an enviable position to take full advantage and sustain fundamental growth in the future.

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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.