11 May 2023
Laser giant reports revenue rise but profit drop due to higher costs; outlines consolidation and cost-cutting plan.Coherent, the Saxonburg, Pennsylvania-based laser company yesterday reported results for its fiscal 2023 third quarter, which ended March 31, 2023. The latest statement contains several positive indicators for the quarter: revenue of $1.24 billion, up 50% year-over-year; organic revenue growth of 6% year-over-year; and an order backlog of $2.6 billion, up 23% year-over-year.
Coherent also reported a net loss of $33.53 million or $0.24 per share for the third quarter, compared with earnings of $31.85 million or $0.28 per share in Q3, 2022, driven by higher expenses. Earnings, adjusted for one-time gains and costs, totalled 58 cents per share. The results were below Wall Street’s expectations; the average estimate of nine analysts surveyed by Zacks Investment Research for the Associated Press was that earnings should have been around 81 cents per share.
In a call with analysts Wednesday, Dr. Vincent D. Mattera, Jr., Coherent’s Chair and CEO, commented, “We posted third quarter revenues of $1.24 billion, up 4% year over year. Revenue grew 50% compared to Q3 of FY22 and declined 9% sequentially. We were intensely focused on controlling costs, managing cash and continuing our disciplined approach to capital allocation and design wins.”
“We started the third quarter with optimism based on a strong backlog, but we experienced a sudden and unexpected deceleration in revenues in the second half of the quarter when some of our larger customers requested us to delay scheduled shipments which primarily affected our revenue in the Networking Segment as those customers began adjusting their inventory levels.
“The solid performance of the Materials Segment, coupled with solid performance of the legacy Coherent business, now our Lasers Segment, provided diversification and stability by exposing us to multiple and different growth markets,” he said.
Dr. Mattera also described how Coherent’s sales could be analyzed by sector, industry and geographical markets: “Revenues in the quarter by segment were $551 million for networking, $365 million for lasers, and $324 million for materials. Turning to the composition of our sales by our four major markets: 35% was into industrial; 44% into communications; 11% into electronics; and 10% into instrumentation.”
“Regarding the distribution of our revenues by region, North America accounted for 53%, Europe was 20%, Japan and Korea were 14%, China was 11%, and 3% went into the rest of the world. In the face of the macro challenges in the quarter, our customers are now taking proactive measures to manage inventory and cash. We expect the constrained market conditions to persist into fiscal year 2024.”
Considering the inegration of II-Vi and Coherent following the 2022 acquistion, Dr. Mattera explained, “We have begun the next phase of the Coherent acquisition integration plan, including actions involving consolidations and moves to lower-cost sites. These moves, alongside our other actions, will keep us on track for delivering the previously announced $250 million synergy plan.
“We have also undertaken a number of actions to align our cost with current market realities as we begin the fourth quarter. We are accelerating the restructuring actions we began in Q3 and announced today,” he said.
“It is focused on workforce reductions to reduce costs and expenses and facility rationalization, including the relocation of certain facilities to increase our resiliency and to lower our costs. We are also planning to implement a multi-year digital transformation that will help enable us to improve our manufacturing productivity and efficiency and to provide lower-cost G&A services.
“We expect to realize 100 million to 125 million of restructuring savings on an annual basis by FY '25. Cumulative savings for the period FY '23 to FY '25 will range from 200 million to 300 million. The cost to achieve these savings will be between 150 million and 200 million.”
The latest statement gives the outlook for the fourth fiscal quarter (ending June 30, 2023), with a revenue of $1,125 million to $1,175 million. The company also expects full-year revenue of between $5,080 and $5,150 million (based on the exchange rates of May 10th).
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