Proto Labs (NYSE:PRLB), which provides quick-turn traditional manufacturing and 3D printing services, is slated to report its third-quarter 2018 results before the market opens on Thursday, Oct. 25.

The company has a lot to prove when it reports. Despite its stock pulling back since setting an all-time high last month, shares have gained 59.8% over the one-year period through Oct. 17. For context, the S&P 500 has returned 11.9% over this period.

Proto Labs doesn't have a good comparable company -- that is, a pure-play manufacturing service provider that works with plastics and metals. That said, it shares a fair degree of similarity with the big pure-play 3D printing players, 3D Systems and Stratasys, so it's worth noting that shares of these two companies are up 56.5% and 1.3%, respectively, over the past year.

A male operator at a CNC metal-working machine.

Image source: Proto Labs.

Key numbers

Here are Proto Labs' year-ago results, its third-quarter guidance, and Wall Street's estimates to use as benchmarks.

Metric

Q3 2017 Result

Proto Labs' Q3 2018 Guidance

Wall Street's Q3 2018 Consensus

Wall Street's Projected Year-Over-Year Change

Revenue

$88.1 million

$110 million to $115 million

$112.6 million

27.8%

Adjusted earnings per share (EPS)

$0.56

$0.71 to $0.77 

$0.74

32.1%

Data sources: Proto Labs and Yahoo! Finance.

Proto Labs is going into earnings on a strong note with respect to its business performance in 2018. Last quarter, revenue grew 34% year over year, with organic revenue increasing somewhat less than 19% on a constant currency basis. Both GAAP and adjusted earnings per share (EPS) surged 49%. The top line fell a bit short of what Wall Street was expecting, while the bottom line slightly exceeded the Street's estimate.

In the first quarter, revenue jumped 34%, with organic revenue increasing somewhat less than 17% on a constant currency basis. GAAP EPS soared 43% and adjusted EPS grew 39%. Both results breezed by analysts' expectations. 

In addition to the headline numbers, here's what to focus on in Proto Labs' report.

Progress on its 2018 priorities, particularly the Rapid integration

Earlier this year, Proto Labs' management shared its three main priorities for 2018, so investors should continue to use them to gauge the company's performance. 

  1. Grow revenue by expanding its customer base and further penetrating its existing customers.
  2. Expand its service offerings. 
  3. Increase the scale of its operations. 

With respect to the second and third priorities, the company's focus is on the integration of Rapid Manufacturing, which it acquired in Dec. 2017. This acquisition added sheet metal work to Proto Labs' service offerings and also expanded its CNC (computer numerical control) capabilities.

As is relatively typical for new acquisitions, Rapid has lowered Proto Labs' overall gross margin. Relative to the year-ago quarter, it was a 200-basis-point (or 2 percentage points) headwind to the company's overall second-quarter gross margin, which was 54%. As integration proceeds, management is confident gross margin will improve.

European 3D printing business  

Investors should expect some color on the earnings call about the company's progress in improving the profitability of its European 3D printing business. As background, the company entered the European market in late 2015 when it acquired German service bureau Alphaform, which provides plastic injection molding and 3D printing services.

The European 3D printing business continues to have a lower gross margin than the company's U.S. 3D printing operation. Proto Labs' management has been working on increasing profitability in Europe and has made some progress on this front. 

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Proto Labs. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool has a disclosure policy.