National Instruments Makes the Most From Mixed Results

Image: National Instruments.

Many companies serve other businesses that, in turn, rely on them in order to do the best job possible for their own clients. As a manufacturer of equipment and software designed to help the scientific and engineering communities deliver the best-available service, National Instruments has benefited greatly from the rising strength of the U.S. economy.

Coming into Tuesday afternoon's first-quarter financial report, National Instruments investors hoped that the company could continue to grow at a healthy pace. Although the company's revenue growth slowed almost to a standstill, it managed to make the most of the situation with solid gains in profits. Let's look more closely at National Instruments and its results to find out how its future looks for its shareholders.

National Instruments: Another quarter, another recordAs we saw last quarter, National Instruments posted record revenue results, although the gains weren't as impressive as they were three months ago. Sales climbed just 2%, to $289 million, with currency-related headwinds costing the company six percentage points of revenue growth. That was well below the more than $300 million in revenue that most investors had expected, but adjusted earnings of $0.18 per share topped the consensus by $0.01, and represented 20% higher results than last year's first quarter.

National Instruments also showed similar performance in its two key segments to what investors have seen in the past. The software maintenance division, which contributes less than 10% of the company's total sales, nevertheless saw revenue soar almost 25%. By contrast, product sales inched downward during the quarter, and a big jump in the costs involved in producing those goods ate into margins and helped result in lower operating results for the company.

Looking at its customer mix, National Instruments relied less on its largest customer than it has in previous quarters, but major customers still make up a huge portion of its overall business. Sales to the single-largest customer dropped 75% from year-ago levels, but orders to customers spending more than $100,000 soared 37% compared to declines for customer sales involving smaller orders.

Geographically, though, National Instruments keeps firing on all cylinders. Taking out currency impacts, the company saw revenue climb in all of its regions, and only weakness in the euro pulled down sales gains enough to wipe out growth in U.S. dollar terms.

Image: National Instruments.

National Instruments was pleased with the results. As CEO James Truchard said, "While we continue to adapt to the impact of the U.S. dollar on our results, I am optimistic about our long-term position in the industry and our ability to continue to gain market share." In particular, Truchard touted the advance of 5G technology, where he sees National Instruments' "innovative technology platform enabling researchers to prototype algorithms for next-generation wireless networks."

Can National Instruments keep growing?The strength of the dollar isn't likely to go away anytime soon, though, and National Instruments will keep having to fight those headwinds as a result. CFO Alex Davern expects dollar strength to persist throughout 2015, but efforts to mitigate currency impacts should start kicking in later in the year. Moreover, comparisons will become more favorable as the year progresses, helping to give a clearer picture of the company's inherent growth.

Specifically, revenue guidance for the second-quarter of $290 million to $320 million is less than the $324 million that investors were looking for, but adjusted earnings of $0.20 to $0.32 per share give National Instruments more upside potential than downside.

Investors didn't react strongly to National Instruments' results, as shareholders appear content to let the stock remain within striking distance of its all-time highs. As long as the company's client base remains economically strong, National Instruments will have the ability to keep riding its customers' coattails to profit growth, especially if it can continue executing so efficiently -- even in a tough currency environment.

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