Earnings preview: Spending trends to discern Cognex Q4 growth

Barcode readers maker Cognex Corporation (CGNX) is scheduled to post its earnings for the fourth quarter today after the market opens. Investors expect the machine vision sensors maker to be hurt by slower spending trends and consumer electronics remained the largest end market for the company to achieve growth.

The concerns have been mounting about the slowing end-market demand. Cognex has remained a favorite portfolio addition for investors looking to participate in the Artificial Intelligence revolution. The earnings call would be highlighting certain fundamental considerations.

Analysts expect Cognex to report earnings of $0.22 per share on revenue of $184.81 million for the fourth quarter. In comparison, during the previous year quarter, the company posted a profit of $0.32 per share on revenue of $180.37 million. Majority of the analysts recommended a “hold” rating on the stock.

The results will be driven by growth across its business, particularly in its largest end market, consumer electronics. The company has been investing in sales and engineering for its long-term growth. Also, Cognex has invested more in industrial machine vision and barcode reading technology for driving its long-term growth and profitability.

The company’s large customers have been spending less on OLED display and smartphone manufacturing in the International region. This would hurt the International revenue while growth in logistics, automotive and life sciences could drive Americas revenue higher.

Also read: Cognex Q3 2018 earnings conference call transcript

Operating expenses are anticipated to rise for the fourth quarter due to its discretionary spending on the industrial machine vision and barcode reading technology. In the third quarter, spending has risen due to its strong commitment to engineering and the continued expansion and development of the sales team.

For the fourth quarter, the company had expected revenue in the range of $180 million to $190 million, with a $15 million headwind from last year’s high level of investment in OLED display and smartphone manufacturing. Gross margin was expected to be in the mid-70% range. Operating expenses were expected to be roughly flat on a sequential basis.

In the third quarter, the company reported a 13% drop in revenue due to slowing end-market demand. Net income plunged by 22% as lower revenue from large customers in OLED display and smartphone manufacturing hurt the top line. The continued investments in sales resources, higher commissions and travel expenses, as well as investment in engineering resources for new product development, lifted the operating expenses higher.

Shares of Cognex opened higher on Tuesday and is trading in the green territory. The stock has fallen over 11% in the past year while it has risen over 8% in the past three months.

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