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3D Systems Corporation Earnings Next Week: 3 Things to Watch

By Steve Heller – Jul 29, 2016 at 11:00AM

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Focus on how the underlying business is performing, and what management is saying about competition and the future.

Image source: 3D Systems.

Earnings season is right around the corner for 3D printing stocks. 3D Systems (DDD 1.09%) is set to report its second-quarter earnings on Aug. 3, before the market opens, while Stratasys (SSYS 0.29%) will report its earnings the following morning.

Last quarter, 3D Systems reported that revenue fell 5% year over year to $152.6 million, which translated into a net loss of $17.8 million, or $0.16 per share. By and large, the decline in sales was driven by the widespread slowdown in customer spending that 3D Systems and Stratasys have experienced for over a year now. Stratasys has theorized that customers have more capacity in their hands than they need, and it's causing them to delay purchasing new 3D printers.

Given the uncertainty caused by this slowdown, 3D Systems hasn't issued any formal guidance about the second quarter. However, the consensus Wall Street estimate is that revenue will fall by 5.6% year over year to $161 million, and the company will earn an adjusted profit of $0.06 per share.

Beyond the headline figures, there are three areas you can watch to see how 3D Systems' underlying business is progressing.

1. The big picture

With the expectation that 3D printing demand remained under pressure in the second quarter, investors will want to see how each of 3D Systems' segments performed. Last quarter, falling 3D printer sales were offset by modest gains in 3D printing materials and services.

Segment

Revenue (Thousands)

Annual Change

Products

$52,495

(16.3%)

Materials

$38,469

3.7%

Services

$61,591

1.1%

Data source: 3D Systems.

The issue with falling printer sales is that they undermine 3D Systems' razor-and-blade model, where printers fuel ongoing sales of materials and consumables, which tend to carry a higher profit margin.

2. The way forward

Wednesday's upcoming earnings call will mark the second time that investors get to hear from Vyomesh Joshi -- 3D Systems' newest CEO, who was hired in April. At the time of 3D Systems' first-quarter earnings call, Joshi only had about five weeks under his belt -- not nearly enough time to take it all in, let alone make any meaningful impression on the business. Joshi did, however, acknowledge that he was in the process of developing a long-term strategy that aims to improve the company's performance.

Although details are currently scarce, the strategy is centered around improving the quality and reliability of 3D Systems' supply chain, defining a market-based strategy and organizing around it, and strengthening the company's culture. But with another quarter under Joshi's belt, investors will want to key into how the 32-year HP veteran with a history of staging turnarounds plans to return 3D Systems to greater glory.

3. The competitive landscape

There's no hiding the fact that the 3D printing industry has become increasingly competitive with the entrance of Carbon's M1 3D printer and HP's upcoming Multi Jet Fusion printer. These technologies offer promises of faster print speeds and compelling material properties, which threaten to displace 3D Systems and Stratasys as the technological leaders in the market.

Although management has previously remarked that it hasn't seen mounting competitive pressure, it hasn't said how the company plans to respond to these new technologies -- and how quickly it plans to do so. After all, if 3D Systems is slow to respond to a disruptive technology, its competitive positioning in the marketplace weakens.

All eyes on Wednesday

When 3D Systems reports earnings, focus on how the underlying business is performing and what management is saying about the future, rather than on how investors react to the news. While it's a bit premature to see Joshi's mark on the business, he can certainly explain what measures he will be taking, and why he thinks they are the right decisions.

Steve Heller owns shares of 3D Systems. The Motley Fool recommends 3D Systems and Stratasys. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

3D Systems Stock Quote
3D Systems
DDD
$9.23 (1.09%) $0.10
Stratasys Stock Quote
Stratasys
SSYS
$13.65 (0.29%) $0.04

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