New applications are expanding IPG's horizons. Cutting metal has been the largest sales driver to date. Welding now is becoming a major contributor, as well. A variety of fancier uses is emerging to provide further leverage. Those include oil drilling, 3-D printing, brazing, coating, and engraving. Non-manufacturing applications represent only 5% of sales currently. But those are poised to expand over the next few years, as well, particularly in semiconductor processing, medical applications, and telecommunications.
Demand is strongest in Europe and Asia, especially China. The U.S. accounts for approximately 10% of sales. Core applications in both of those international regions continue to perform well despite reports of macro-economic problems. New products are reinforcing that expansion. Cash flow is positive, fueled by pretax margins that routinely exceed 35%. That allows IPG to respond quickly and effectively when competitive threats develop. Over the past year upstart producers in China cut into IPG's low end marking business. The company engineered a low cost line of its own, with regular margins, that turned back the tide. Traditional laser manufacturers have been attempting to break into the fiber business. They've succeeded to a degree with specialized products sold to longstanding customers. Margins are believed to be tight on those units, though. And IPG stands ready to make selective price cuts if it becomes necessary to turn the screws.
We estimate 2014 sales will advance 17% to $760 million. Earnings appear on track to rise 22% to $3.85 a share. Margins probably will benefit 1.0% this year from favorable currency moves. Much of the company's production is based in Europe. The euro's decline is lowering costs. Next year sales could improve 15% to $875 million to support a 12% gain in earnings to $4.30 a share. Our estimates assume margins return to normal. IPG has a $500 million war chest that might be deployed for acquisitions. The company has been unable to find what it wants to date. It's been looking for a while now, so a purchase in the laser segment has become increasingly less likely. But a move into a related business remains a possibility. 3-D manufacturing, for instance, might provide a high rate of return on the surplus cash now being generated by the fiber laser business. If nothing emerges, a stock repurchase or dividend program could be established.
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