What to Watch When Stratasys Reports Q2 Earnings on Thursday

Stratasys Ltd. (SSYS 1.01%) is slated to report its second-quarter 2016 earnings before the market opens on Thursday, Aug. 4. Its report is scheduled to follow that of rival 3D Systems Corporation, which plans to release results on Aug. 3. Both leading diversified 3D printing companies have struggled to grow revenue since the first quarter of 2015 amid a widespread slowdown in demand for enterprise 3D printers.

Investors will get their first chance during the earnings call to hear from Stratasys' new CEO, Ilan Levin, who assumed the top spot on July 1, replacing David Reis, who stepped down. Given that Levin is a longtime board member and Reis remains on the board, it doesn't seem likely that there will be any major changes in strategy.

Here's what to watch in Stratasys' report:

Image source: Stratasys.

Stratasys' headline numbers 

Stratasys' year-ago period's results to use as benchmarks:

Data source: Stratasys..

Analysts are expecting Stratasys to deliver adjusted EPS of $0.06 on revenue of $175.78 million, representing year-over-year declines of 60% and 3.6%, respectively. These expectations are worth knowing because they often can explain market reactions. Long-term investors, however, should keep in mind that Wall Street is focused on the short term.

The capital spending environment 

Stratasys, along with 3D Systems, has faced significant macroeconomic headwinds for five quarters now. The company has attributed the weak demand from enterprise customers to a glut of 3D printers in the field due to the large numbers that were purchased during the previous few years.

This explanation no doubt accounts for a portion of the demand slowdown. However, it's likely that some businesses were delaying buying decisions to see the 3D printers that HP Inc. and Carbon (formerly Carbon3D) were expected to bring to market. These launches occurred in May and April, respectively, so some of these same companies are likely now testing one or both of the newly released 3D printers. Both new entrants' printers are reportedly much faster than those on the market that are powered by the leading 3D printing technologies. 

Given these launches just occurred, it's likely unrealistic for investors to hope that across-the-board demand for Stratasys' enterprise printers has picked up. So, any glimmer of good news should be viewed extremely positively.

Market reaction to J750

Last quarter, Stratasys launched the J750, which is the world's first full-color, multimaterial 3D printer. It can automatically map more than 360,000 colors from design software or photorealistic models and load six materials at once without swapping canisters. This printer is the newest addition to the company's well regarded Objet Connex multicolor, multimaterial 3D printer series.

Hopefully, Stratasys' management comments on the sales of this new model. 

Don't sweat MakerBot

MakerBot should continue to take a backseat. Stratasys' enterprise business, which accounts for the bulk of its revenue and sports higher-than-company-average margins, will be what makes or breaks the company.

The beleaguered desktop 3D printer unit's sales declined by 23% last quarter on a year-over-year basis but increased sequentially by 27%. The latter number suggests that MakerBot has already bottomed out and that its reorganization is having a positive effect. Of course, one quarter doesn't make a trend, so hopefully this quarter's results will confirm that the MakerBot bottom is likely in the rearview mirror.

Takeaway

This will likely be another tough quarter for Stratasys, at least on the product revenue end. (The company did a solid job last quarter cutting costs, which helped its bottom line; the same might prove true again this quarter.) There seems little reason to believe that macroeconomic headwinds have subsided; they perhaps have even picked up due to increased competition. 

Investors should be focused on what Stratasys is doing to position itself for long-term success.