Proto Labs (PRLB -1.26%), a quick-turn contract manufacturer, is slated to report its third-quarter 2019 results before the market opens on Thursday, Oct. 24. The Minneapolis area-based company uses traditional and 3D printing manufacturing techniques to provide prototyping and short-run production services.
Proto Labs stock has been struggling this year -- it's down 7% through Oct. 21 versus the S&P 500's 21.7% return -- but it remains an outperformer over the three-year period. For additional context, shares of the two largest pure-play 3D printing companies, 3D Systems and Stratasys, are down 18.3% and up 9%, respectively, so far in 2019.
Here are four things to watch in Proto Labs' report.
CNC metalworking machine. Image source: Getty Images.
1. Key numbers
Here are Proto Labs' year-ago results, its guidance, and Wall Street's estimates to use as benchmarks.
|
Metric |
Q3 2018 Result |
Proto Labs' Q3 2019 Guidance |
Wall Street's Q3 2019 Consensus Estimate |
Wall Street's Projected Change |
|---|---|---|---|---|
|
Revenue |
$115.4 million |
$116 million to $122 million |
$119.4 million |
3.5% |
|
Adjusted earnings per share (EPS) |
$0.86 |
$0.69 to $0.77 |
$0.74 |
(14%) |
Data sources: Proto Labs and Yahoo! Finance.
Expectations for the quarter are low. This is due in part to weakness in the business that Proto Labs acquired in late 2017, Rapid Manufacturing, which provides sheet metal and CNC (computer numerical control) metal-machining services in the United States. Softening global economic growth has also recently been providing a headwind for growth on both the top and bottom lines. Moreover, the company's increased spending on sales and marketing and research and development negatively affected last quarter's earnings.
In the second quarter, Proto Labs' revenue grew 5.7% year over year -- or 7% in constant currency -- to $115.9 million, while adjusted EPS slipped 2.7% to $0.71. The company's legacy business had fairly solid revenue growth of about 9% in constant currency, while the Rapid business's revenue declined 8.6%. And in the first quarter, revenue rose 5.3% year over year -- or 6.9% in constant currency -- while adjusted EPS edged down 2.8%.
2. Gross margin
Investors will want to take in Proto Labs' gross margin, as this metric has been under pressure due to the Rapid acquisition. In the second quarter, gross margin fell to 52%, from 54% in the year-ago period, though it inched up sequentially, as it was 51.9% in the first quarter.
3. Number of unique product developers and engineers served
Last quarter, this key metric increased 4.7% year over year to 20,840. This was a weak showing, as this metric was 9.3% in the first quarter.
4. Fourth-quarter guidance
Investors care more about the future than the past. So the market's reaction to Proto Labs' earnings release will probably hinge more on the company's fourth-quarter guidance (which will probably be provided indirectly via a full-year outlook) than on its third-quarter results. So you should know Wall Street's Q4 projections: adjusted EPS of $0.70 on revenue of $117.9 million, representing a decline of 5.4% and an increase of 4.5%, respectively, year over year.
