What’s in the Store for IPG Photonics (IPGP) in Q2 Earnings?

IPG Photonics Corporation IPGP is slated to report second-quarter 2018 results on Jul 30.

Notably, the company has outpaced the Zacks Consensus Estimate in the the trailing four quarters, with an average positive surprise of 12.6%.

The company delivered first-quarter 2018 adjusted earnings of $1.93 per share, beating the Zacks Consensus Estimate by 13 cents. Strong year-over-year growth was driven by a surge of 26% in sales from the year-ago quarter to $359.9 million. The figure surpassed the Zacks Consensus Estimate of $347 million.

Robust performance in China, Europe and Japan due to strong demand across a variety of applications and industries drove year-over-year sales growth. Apart from strong order flow, robust integration of the company’s business model with vertically-integrated manufacturing operation, production & operations management, customer credit management and global administration aided growth.

Guidance & Estimates

IPG Photonics expects sales in the range of $400-$430 million for the second quarter of 2018, reflecting 8-15% growth from the year-ago quarter.

Earnings are projected in the range of $2.05-$2.35 per share, which reflects an increase of 7-23% from the year-ago quarter.

The Zacks Consensus Estimate for revenues in the quarter under review is pegged at $417.7 million, up 13.1% year over year. While the Zacks Consensus Estimate for earnings are pegged at $2.22 per share, up 16.2% year over year.

Let’s see how things are shaping up for the upcoming announcement.

Factors at Play

IPG Photonics is benefiting from strong adoption of fiber lasers over conventional lasers as well as non-laser cutting and welding equipment. According to management, secular transition to high powered products and increased electric vehicle battery production were the primary drivers behind the increased adoption of the high powered lasers.

Sales in Europe and the United States increased 35% and 3.4% year over year, respectively, in the last reported quarter while sales in China surged 28.5% and represented almost 42% of total sales. This highlights strong global adoption of IPG’s product portfolio. Management anticipates the trend to continue in the to-be-reported quarter.

Further, acquisitions have helped the company to expand its product portfolio. IPG is gradually expanding into new end-markets like advanced applications (3D Printing, Cinema, and micro-materials processing), communications and medical based on robust product portfolio and strong intellectual property (IP). These have a total addressable market (TAM) of $2.4 billion, which presents significant growth opportunity.

Further, we believe that IPG's vertically integrated business model is a key differentiator. This will not only help it to maintain technological lead but also keep costs of production lower. This will aid the company to continue investments in product development.

We believe all these factors are likely to aid the company’s second-quarter results.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

IPG has a Zacks Rank #2 and an Earnings ESP of 0.00%.

Stocks With Favorable Combination

Here are few companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

BMC Stock Holdings, Inc. BMCH has an Earnings ESP of +9.29% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Intercept Pharmaceuticals, Inc. ICPT has an Earnings ESP of +4.25% and a Zacks Rank #2.

HubSpot, Inc. HUBS has an Earnings ESP of +9.68% and a Zacks Rank of 3.

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