Newport has announced plans to cut costs by $12 million per year following poor sales and earnings in the first half of 2015.
The lasers and optics sectors of the business experienced the most disappointing results, partly due to Newport's acquisition of Femtolasers earlier this year, which significantly affected the sectors' profitability.
‘Our second quarter sales and earnings were below our expectations, and our near-term outlook has moderated in certain areas of our business,’ said Robert Phillippy, Newport’s president and CEO. ‘Accordingly, we are implementing cost reduction actions in these areas to align our cost base with current business conditions.’
The company’s life sciences market, which supplies lasers, motion systems, optical solutions and design guidance for Life and Health Sciences customers, saw sales decline by 19.2 per cent and orders decrease by 14.2 per cent compared to the first quarter of 2015.
In February this year, Newport’s Spectra-Physics Lasers Group acquired Femtolasers, a leading developer and manufacturer of ultrafast laser systems used in the scientific and biomedical research fields, for $8.4 million. At the time, the company expected the acquisition to generate sales in the range of $8 million to $12 million in the first year; however, a $1.4 million loss in profitability was reported in its latest financial report.
This failure to meet expectations was due to low volumes of orders and problems in manufacturing, the company said. However, it also expects that Spectra-Physics will grow in profitability and be accretive to Newport’s financial results by the end of the year.
The Lasers and Optics Groups will experience the majority of the cutbacks – sales and administrative personnel will be reduced along with spending on research and development. However, the company has stated that it will continue to invest in a number of areas where its revenue and profit growth initiatives are achieving success.
‘Our revenue outlook has become more cautious in certain areas of our business, particularly our Lasers Group and the US operations of our Optics Group, so we have initiated steps to streamline our cost structure,’ explained Phillippy. ‘The actions will be implemented over the next two quarters, and we expect them to positively impact our second half results, with the full benefit reflected in the first quarter of 2016. These targeted cost reductions are focused on specific business areas where we have experienced market weakness, and programs that are not achieving their targets.’
Phillippy added: ‘We expect our cost reduction actions to give us stronger profit leverage in the fourth quarter and beyond.’