Please ensure Javascript is enabled for purposes of website accessibility

Proto Labs Kicks Off 3D Printing Earnings Season: What to Watch

By Beth McKenna - Jan 22, 2020 at 10:12AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Revenue growth and guidance will be key when the contract manufacturer reports Q4 results.

Proto Labs (PRLB 4.69%), a quick-turn contract manufacturer, is slated to report its fourth-quarter and full-year 2019 results before the market opens on Thursday, Feb. 6.

As is typically the case, the company -- which uses both traditional and 3D printing manufacturing techniques -- will kick off the quarterly earnings season for the 3D printing space. The two largest pure-play 3D printing companies, 3D Systems and Stratasys, haven't yet announced dates for the release of their results.

Investors will likely be approaching the report with caution. Last quarter, revenue fell short of Wall Street's consensus estimate, and fourth-quarter guidance for both the top and bottom lines came in lower than analysts had expected.

Proto Labs stock has had a strong start to 2020, gaining 7% through Jan. 21, versus the S&P 500's 2.9% return. The stock was still an underperformer, however, over the last year. But it's notably outperformed the market over the three-year period and since the company's initial public offering (IPO) in April 2012.

Here are three key things to watch in Proto Labs' report.

Close-up of a CNC machine drilling a hole in metal.

Image source: Getty Images.

1. Key quarterly numbers: Revenue should be the main focus

Metric

Q4 2018 Result

Proto Labs' Q4 2019 Guidance

Wall Street's Q4 2019 Consensus Estimate

Wall Street's Projected Change

Revenue

$112.8 million

$109 million to $115 million

$112 million

(0.7%)

Adjusted earnings per share (EPS)

$0.74

$0.59 to $0.67

$0.63

(14.9%)

Data sources: Proto Labs and Yahoo! Finance.

As with the past couple of quarters, expectations are low. In 2019, Proto Labs has been struggling to grow revenue in a global industrial environment that management has characterized as "weak." Moreover, the company's Rapid Manufacturing business, acquired in late 2017, has been underperforming management's expectations. (Rapid provides sheet metal and computer numerical control, or CNC, metal-machining services in the United States.) Whether this is primarily a matter of management originally underestimating how long the integration would take or overestimating Rapid's potential remains to be seen. It's still relatively early in the integration process, though that won't be true in a year when we cross the three-year point.

For context, in the third quarter, Proto Labs' revenue edged up 1.8% year over year -- or 2.5% in constant currency -- to $117.5 million, and adjusted EPS fell 12% to $0.76. On last quarter's earnings call, CEO Vicki Holt said that revenue growth for the company's legacy services was about 4% in constant currency, while Rapid's revenue declined 14.3%. Both revenue growth rates worsened from the second quarter, when they were about 9% and negative 8.6%, respectively.

2. Gross margin

The company's gross margin has declined since the Rapid acquisition. In the third quarter, the gross margin based on reported numbers came in at 50.8%, down from 52% in the second quarter. Adjusted gross margin was 51.5%, down sequentially from 52.6%.

3. First-quarter 2020 guidance

The market is forward looking, so its reaction to Proto Labs' earnings release will probably be largely driven by the company's outlook relative to Wall Street's expectations. So you should know that in Q1 2020, analysts are modeling for adjusted EPS of $0.67 on revenue of $115.3 million, representing a slight decline of 2.9% and an unchanged result, respectively, year over year.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Proto Labs, Inc. Stock Quote
Proto Labs, Inc.
PRLB
$44.21 (4.69%) $1.98
Stratasys Ltd. Stock Quote
Stratasys Ltd.
SSYS
$19.30 (12.73%) $2.18
3D Systems Corporation Stock Quote
3D Systems Corporation
DDD
$10.76 (6.64%) $0.67

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
338%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.