Cognex (CGNX $42.00) reported excellent on target Q4 results. The year ago quarter was inflated by the recognition of a multi-year project. So financial comparisons were skewed, presenting a -1% decline in sales ($84.0 million) and a -4% reduction in non-GAAP earnings ($.48 a share). Foreign currency translation lowered reported sales by an additional 3%. And shipments to the electronics and semiconductor capital equipment market nosedived again, declining -55% year to year. That's become a small part of the business over the years but still represents approximately 10% of the total. The surface inspection unit also was hit by a fall-off in solar industry demand. That segment contributes about 15% of revenue. Offsetting all those negatives was the continued boom in factory automation demand. The surge was moderated somewhat by a slowdown in Chinese orders. That stemmed from the central planners, not the industrial base. Order rates are believed to be picking up again now that the government has relaxed its anti-inflation program. Demand was vibrant in the U.S. and Europe. And that trend is likely to continue as manufacturers drive costs down and quality up with automated systems.
New products are reinforcing growth. Cognex launched a revolutionary bar code reader in 2011 geared to shipping and warehouse applications. The unit reads complex 3-D bar codes faster and more reliably than existing machines, boosting productivity for customers like Federal Express and UPS. A broader rollout is on tap for the current year. Systems for medical testing applications are being designed into next generation units, as well. That line will take a little longer to get moving due to the FDA review process involved. But volume promises to build consistently as the new machines reach the market. Demand remains especially robust in the automotive and other industrial markets. Inspection and marking applications remain strong, too. Pricing remains solid in the absence of meaningful competition.
We estimate 2012 sales will advance 12%-18% to $360-$380 million. Cognex is continuing to pursue acquisitions, which could yield further leverage. Non-GAAP income appears headed to the $1.95-$2.15 a share range (+11%-22%). A rebound in the solar and semiconductor capital equipment markets could amplify performance.
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