The Future Looks Brighter for National Instruments

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National Instruments (NASDAQ: NATI) aims to produce tools to help those in the engineering and scientific fields do their work more effectively, and its integrated hardware-and-software platform has given those customers the systems they need to boost their productivity. After a long slump, the industrial sector finally started to pick up steam toward the end of 2016, and National Instruments has taken full advantage of better conditions to boost its own business.

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Coming into Thursday's second-quarter financial report, National Instruments investors wanted to see modest revenue gains that would translate to strong earnings. The company's results were mixed on those fronts, with NI's revenue growing a bit more slowly than hoped, but with better bottom-line performance. Let's look more closely at National Instruments' latest results to see what they say about the company's future.

National Instruments passes the test

National Instruments' second-quarter results continued to show some of the positive momentum that the company has seen in recent quarters. Sales climbed 4%, to $318.6 million, which was a bit slower than the 5% growth rate that investors were hoping to see. GAAP net income was up 27% from the year-ago period, and after making allowances for extraordinary items, adjusted earnings of $0.27 per share were far above the consensus forecast for $0.19 per share on the bottom line.

Looking more closely at the report, what stands out most clearly is how the reliance that NI used to have on its largest customer has waned over time. During the second quarter, NI brought in $12 million in orders from that customer, but that was down a third from where its order volume was a year ago.

More broadly, NI saw strong order growth. Overall, when you take out what the company's largest customer ordered, total orders were up 8%. Small orders of less than $20,000 were flat from year-ago levels, and orders of $20,000 to $100,000 posted just a 1% gain. Yet orders above $100,000 jumped 42%, accelerating from their improved pace in the first quarter of 2017.

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On a segment basis, National Instruments saw nearly equal performance across its business. Both product sales and software maintenance revenue were up 4%. Yet a substantial rise in software-maintenance costs weighed on gross margin figures, costing NI an entire percentage point. National Instruments' best results came in the Europe, Middle East, India, and Africa segment, with local-currency sales growth of 10%. In the Americas, NI posted 6% gains, while the Asia-Pacific region suffered a 1% drop in its revenue.

Can NI keep gaining ground?

CEO Alex Davern sees plenty of reasons to be optimistic about the future. "We believe alignment of our product channel investments toward the growth opportunity in 5G communications, semiconductor test, the connected vehicle, and the industrial Internet of Things continues to move our platform closer to our users' challenges," Davern said, "which increases our impact within these applications." CFO Karen Rapp also weighed in, noting how strong order growth and better industry trends should help bolster results looking forward.

NI gave future guidance that was relatively solid. The third quarter should bring revenue of $304 million to $334 million, and the midpoint of that range is right where the consensus forecast among those following the stock happens to be. Adjusted earnings guidance for $0.22 to $0.36 per share would be a bigger boost than most are expecting to see, and that points to a potential upswing in momentum for National Instruments.

NI stock didn't move much in after-hours trading following the announcement, and investors appear to be comfortable with the company's prospects. With fundamental conditions for National Instruments' business improving, it's up to its leaders to make sure that NI executes well and takes full advantage of favorable conditions as long as they last.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends National Instruments. The Motley Fool has a disclosure policy.