Were ExOne's Earnings Really That Bad?

ExOne (NASDAQ: XONE  ) investors were left hanging their heads Wednesday after the stock dropped by as much as 16% during intraday trading, following the additive manufacturing specialist's disappointing second-quarter results.

However, shares of ExOne did recover as the morning wore on, and currently sit down just 8%.

The numbers
To be sure, the company turned in a net loss of $1.1 million, or $0.08 per share, on revenue of $9.2 million. For reference, analysts on average were expecting a loss of only $0.06 per share on $9.33 million in sales.

Meanwhile, fellow 3-D printing stocks 3D Systems (NYSE: DDD  ) and Stratasys (NASDAQ: SSYS  )  also remained guilty by association, each down around 2% as of this writing.

Of course, this also throws water on my hope that Stratasys' strong report last week was enough to turn the tide in the bulls' favor for 3-D printing stocks in general, especially after what I believed to be an overreaction to 3D Systems' not-so-bad quarterly results the week before.

To my credit, though, I did also suggest at the time ExOne's report this week might just provide another chance to get in for long-term investors eager to take advantage of another pullback.

But as fellow Fool Steve Heller so astutely pointed out Wednesday, Stratasys' strong report was more or less in line with expectations, if you ignore the positive effects of its recent $400 million deal to merge with MakerBot. Even so, as I noted last week, remember that the company is also finally beginning to enjoy the collaborative fruits of its whale of a merger last year with fellow industry giant Objet.

But that merely highlights just how fine the line really is between what Mr. Market considers a great report and a bad one -- and this is especially evident when we're talking about high-priced 3-D printing stocks, which tend to sport uncomfortably rich valuations thanks largely to their massive forward earnings potential.

When bad is really good
So contrary to what the market might indicate, ExOne's second-quarter results aren't as awful as they may seem on the surface.

After all, the company's revenue still increased 97% from the second quarter of 2012, and gross margin grew to 45% from 33% over the same period. This, in turn, translated to ExOne's $1.1 million net loss, which represents a dramatic improvement over last year's second-quarter loss of $3.6 million.

Then again, the market also didn't take kindly to the fact that ExOne also said it now expects full-year 2013 revenue will come in at the lower end of its previous guidance of $48 million-$52 million, based on a combination of no expected sales of laser drilling machines and the timing of year-end shipments in 2013. In addition, ExOne says, the weakening of the Japanese yen relative to the U.S. dollar will negatively affect its expected revenue, and operating expenses are expected to be at the upper end of its previous guidance of $18 million-$21 million.

Still, gross margin should continue to improve, ultimately coming in at the higher end of its 42%-46% range, which should only serve to accelerate the company's march toward sustained profitability.

Foolish takeaway
In the end, investors would be wise to remember that these kinds of wild swings are par for the course with high-flying 3-D printing stocks as their underlying companies try in vain to meet investors' lofty expectations.

So while it's certainly not a great idea to go all-in at once with any one of the above-mentioned names, consider these pullbacks a temporary gift to help you slowly build a position in a fast-growing market with enormous long-term potential.

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  • Report this Comment On August 15, 2013, at 8:11 AM, 110254545yy wrote:

    After all, the company's revenue still increased 97% from the second quarter of 2012, and gross margin grew to 45% from 33% over the same period.

    ONE PARAGRAPH TO KEEP IN MIND FOR LONG TERM

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