Proto Labs (PRLB -0.47%), which provides technology-enabled, quick-turn, traditional manufacturing and 3D printing services, is slated to report its fourth-quarter 2017 earnings before the market opens on Thursday, Feb. 8.
Proto Labs has a lot to prove when it reports. In 2017, its stock -- which I called the best 3D printing stock to buy for 2017 early last year -- soared 101%, crushing the S&P 500's 21.8% return, as well as those of 3D printing players 3D Systems and Stratasys. Shares are continuing their strong performance in 2018, as they're up 9%, versus the broader market's 6.1% return, as of this writing on Jan. 22.
Image source: Proto Labs.
Key numbers
Here are Proto Labs' year-ago results, its fourth-quarter guidance, and Wall Street's consensus estimates to use as benchmarks.
|
Metric |
Q4 2016 Result |
Proto Labs' Q4 2017 Guidance |
Analysts' Q4 2017 Consensus |
Analysts' Projected Year-Over-Year Change |
|---|---|---|---|---|
|
Revenue |
$72.35 million |
$85 million to $90 million |
$91.34 million |
26.2% |
|
Adjusted earnings per share (EPS) |
$0.41 |
$0.52 to $0.58 |
$0.56 |
36.3% |
Data sources: Proto Labs and Yahoo! Finance.
Proto Labs has solid momentum going into earnings. Last quarter, it comfortably beat Wall Street's expectations on both the top and bottom lines. In the second quarter, it essentially met analysts' consensus estimates, while it breezed by them for both revenue and earnings in the first quarter.
In addition to the headline numbers, here's what to focus in Proto Labs' report.
Progress on its three main goals
Proto Labs' management established the following three main goals for 2017, so investors should continue to use them to gauge the company's performance:
- Improving sales and marketing productivity to drive growth in the number of new product developers and growth in revenue.
- Continued expansion of service offerings to fulfill more of its customers' needs.
- Improving gross margin to 58% to 60% of revenue.
If you subscribe to singer Meatloaf's belief that "two out of three ain't bad," then Proto Labs' progress on these goals ain't bad. As to No. 1, management said last quarter that it made solid progress on improving its sales and marketing efforts. The company's number of unique product developers served increased 18.5% year over year, while the average revenue per product developer increased about 2.5% sequentially.
Proto Labs has been making good progress on the second goal, and investors should expect an update on the conference call regarding new services. The company has been falling short on goal No. 3. In the third quarter, gross margin declined to 56% from 57.2% in the year-ago period, and also ticked down slightly sequentially from 56.5% in the second quarter. The introduction of new products was one of the two reasons management cited for the decline, with the other factor as follows.
European business results
The relatively new 3D printing business in Europe continues to have a negative impact on gross margin. Proto Labs acquired this business in October 2015, when it bought the German service bureau Alphaform, which provides injection molding and 3D printing services. Management's first move after acquiring Alphaform was to get rid of unprofitable business. Its focus now is bringing the profitability of its 3D printing business in Europe closer to the level the company enjoys in the United States.
The second key issue with the European operation is the slow growth of the plastic injection molding business. Last quarter, Proto Labs' overall injection molding segment -- the largest of its three businesses -- grew revenue 6.5% year over year, making it the slowest growing of the company's segments, which also include metal CNC machining business and 3D printing. It was an improvement over the second quarter's 4.5% year-over-year growth, but it's still not good growth.
Investors should expect some color on the earnings call about the company's progress in addressing these issues.
