Coherent (NYSE:COHR) Beats Q2 Sales Expectations But Stock Drops 16.9%

Materials and photonics company Coherent (NYSE:COHR) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 16.4% year on year to $1.53 billion. On the other hand, next quarter’s revenue guidance of $1.53 billion was less impressive, coming in 0.6% below analysts’ estimates. Its non-GAAP profit of $1 per share was 8.7% above analysts’ consensus estimates.

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Jim Anderson, CEO, said, “We delivered a strong fiscal 2025 with revenue growth of 23% and non-GAAP EPS expansion of 191%. We believe we are well positioned to continue to drive strong revenue and profit growth over the long-term given our exposure to key growth drivers such as AI datacenters. We also continue to optimize and focus our portfolio with the recently announced agreement to sell our Aerospace and Defense business. As we enter a new fiscal year, we are excited about the growth opportunities ahead of us.”

Company Overview

Created through the 2022 rebranding of II-VI Incorporated, a company with roots dating back to 1971, Coherent (NYSE:COHR) develops and manufactures advanced materials, lasers, and optical components for applications ranging from telecommunications to industrial manufacturing.

Revenue Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $5.81 billion in revenue over the past 12 months, Coherent is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions.

As you can see below, Coherent’s sales grew at an incredible 19.5% compounded annual growth rate over the last five years. This is an encouraging starting point for our analysis because it shows Coherent’s demand was higher than many business services companies.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Coherent’s annualized revenue growth of 6.1% over the last two years is below its five-year trend, but we still think the results were respectable.

This quarter, Coherent reported year-on-year revenue growth of 16.4%, and its $1.53 billion of revenue exceeded Wall Street’s estimates by 1.4%. Company management is currently guiding for a 13.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 10.6% over the next 12 months, an improvement versus the last two years. This projection is healthy and implies its newer products and services will fuel better top-line performance.

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Adjusted Operating Margin

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.

Coherent has been an efficient company over the last five years. It was one of the more profitable businesses in the business services sector, boasting an average adjusted operating margin of 17.7%.

Analyzing the trend in its profitability, Coherent’s adjusted operating margin decreased by 1.5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Coherent generated an adjusted operating margin profit margin of 18%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Coherent’s EPS grew at an unimpressive 6.9% compounded annual growth rate over the last five years, lower than its 19.5% annualized revenue growth. However, its adjusted operating margin actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

We can take a deeper look into Coherent’s earnings to better understand the drivers of its performance. As we mentioned earlier, Coherent’s adjusted operating margin was flat this quarter but declined by 1.5 percentage points over the last five years. Its share count also grew by 52.2%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Coherent, its two-year annual EPS growth of 9.9% was higher than its five-year trend. Accelerating earnings growth is almost always a great sign.

In Q2, Coherent reported adjusted EPS of $1, up from $0.61 in the same quarter last year. This print beat analysts’ estimates by 8.7%. Over the next 12 months, Wall Street expects Coherent’s full-year EPS of $3.60 to grow 27.3%.

Key Takeaways from Coherent’s Q2 Results

It was good to see Coherent beat analysts’ revenue and EPS expectations this quarter. On the other hand, its revenue guidance for next quarter slightly missed. Overall, this print was mixed. The market seemed to be hoping for more, and the stock traded down 17% to $94.78 immediately following the results.

Is Coherent an attractive investment opportunity at the current price? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.