Stratasys Earnings: 3 Key Areas to Watch on Monday

Stratasys (SSYS -1.95%) is slated to report its first-quarter earnings before the market opens on Monday, May 11. Unfortunately, investors already know what to expect with respect to the headline numbers. On April 29, the leading 3D printing company shocked the market when it released preliminary results that fell short of analysts' expectations and lowered its full-year 2015 guidance.

First, a recap of what we already know, and then what investors should watch for on Monday.

The preliminary Q1 results and full-year 2015 guidance
The big picture: 

Sources: Stratasys and Yahoo! Finance.

Source: Stratasys.

What we know: MakerBot's continued woes; other reasons for shortfalls; ratcheting back of 2015 capital spending
We know that Stratasys expects MakerBot's year-over-year revenue to fall about 18%, and that it will take a goodwill impairment charge for the desktop 3D printer maker of approximately $150 million to $200 million in the quarter. This follows the $102 million impairment charge it took for MakerBot last quarter. The continued MakerBot woes account for much of the company's anticipated earnings shortfall in the quarter and year, as the expected impairment charge equates to about $1.96-$2.16 per share.

Unlike last quarter, however, Stratasys also experienced weakness in its core enterprise-focused offerings. It attributed this to several factors, including the negative impact from a strong U.S. dollar. The most concerning factor cited was a decline in capital spending among certain industries, particularly in North America.

We also know that in light of the current economic environment that Stratasys plans to reduce its 2015 capital expenditures from a range of $160 million-$200 million to a range of $80 million-$110 million.

What investors should focus on in Stratasys' official results:

Revenue expectations for enterprise offerings in 2015
For the year, Stratasys pared back its revenue expectations $120 million -- from $950 million to $830 million, the midpoints of the original and current ranges.

Investors should key in on how much of this pare back is due to MakerBot versus how much is due to its core enterprise-focused product and service offerings. The greater the latter, the more concerning the situation, in my view. Enterprise offerings account for the bulk of Stratasys' revenue (about 88% in the last quarter; never less than 81%). More importantly, however, they're the company's earnings-growth engine, as they sport higher margins than MakerBot.

Decline in capital spending 
Stratasys' preliminary result's press release didn't expound on the statement about the "decline in capital spending among certain industries, particularly in North America."

Investors should pay close attention to what Stratasys says about this factor. A decline in spending because of short-term economic headwinds is a minor bump in the road, while a decline that appears like it could be more protracted is considerably more worrisome. 

It seems a core question is whether some customers are delaying purchases to see what competitive offerings are on the horizon from others, most notably from Hewlett-Packard in 2016. It's doubtful that Stratasys will address this issue in its earnings release, but it's highly likely that analysts will ask about it during the conference call. 

The usual: margins and average selling prices
We already know that Stratasys expects gross margin on a non-generally accepted accounting principles basis to fall approximately 190 basis points over the fourth quarter of last year, mainly because of a change in product mix. Investors should key in on whether a drop in average selling prices for the enterprise-focused offerings is a factor here. Obviously, we don't want to see the company losing pricing power, though one quarter doesn't make a trend. Up until last quarter, Stratasys' ASPs -- excluding MakerBot -- were holding firm.