FARO Technologies (FARO) had a solid Q4 14, but a negative foreign exchange impact, weak sales in Asia Pacific, weak demand in Brazil and Japan, and a sluggish environment in capital spending significantly hurt Q1 15 numbers. Further, questions of the near term solutions have been met with low expectations and a lack of material near-term catalysts have made FARO Technologies the Zacks Bear of the Day.
This Zacks Rank #5 (Strong Sell) and its international subsidiaries are pioneers and market leaders in the computer-aided manufacturing measurement market, which is the final frontier of the computer-aided design and computer-aided manufacturing revolution. FARO’s product line includes portable, 3D measurement equipment, computer-aided design based inspection software for portable and fix-base coordinate measurement machines, as well as factory-level statistical process control, and manufacturing quality consulting services.
In the most recent earnings report, FARO saw their EPS decline 87% y/y, sales dropped 5% y/y, Orders declined 3% y/y, and a decline in Metrology (Arms -8%, Trackers -25%). Management stated that the main culprit for the declines was an abrupt slowdown in capital spending which caused customers to defer purchases till Q4 15 at the earliest. Further, management is not too optimistic about a quick bounce back, stating, “We do expect slower capital decision making process to continue in the near term”. This will most likely have a negative impact on Q2 and Q3 results unless there is a marked change in capital spending.
Estimates Graph
The graph below shows the Price and Consensus Estimates for FARO. As you can see the estimates have significantly declined for 2015-2016.
Declining Estimates
Over the past 30 days earnings estimates for FARO have declined for Q2 15, Q3 15, FY 15, and FY 16. Q2 15 fell from $0.44 to $0.22, Q3 15 dropped from $0.44 to $0.29, FY 15 plummeted from $1.95 to $1.20, and FY 16 tumbled from $2.34 to $1.77.
Bottom Line
The next two quarters are going to be tough for FARO Technologies, and the declining estimates indicate that this is going to be the case going into 2016. With limited capital spending in Brazil and Japan, strong FX currency headwinds, and weak Asian sales, it is best to stay on the sidelines.
If you are inclined to invest in the Computer-Integrated Systems segment, you would be best served looking into Top Image Systems (TISA), and or Vasco Data Security International (VDSI), which both carry a Zacks Rank #2 (Buy) rating.
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