Proto Labs (PRLB 2.18%) stock plunged 9.2% on Thursday after the quick-turn contract manufacturer released its fourth-quarter and full-year 2019 results. On Friday, the stock fell another 4%, bringing its two-day post-earnings release loss to 12.8%. By contrast, the S&P 500 rose 1% over this period.
We can attribute the market's ire largely to the company's first-quarter 2020 earnings guidance falling significantly short of Wall Street's consensus estimate, along with its revenue outlook coming in a bit lighter than analysts were expecting. For Q4, though, Proto Labs met estimates on both the top and bottom lines.
Image source: Proto Labs.
Key quarterly numbers
|
Metric |
Q4 2019 |
Change (YOY) |
|---|---|---|
|
Revenue |
$111.9 million |
(0.8%), or (1%) in constant currency |
|
GAAP net income |
$15.2 million |
(21%) |
|
Adjusted net income |
$17.1 million |
(16%) |
|
GAAP EPS |
$0.56 |
(21%) |
|
Adjusted EPS |
$0.63 |
(15%) |
Data source: Proto Labs. YOY = year over year. GAAP = generally accepted accounting principles. EPS = earnings per share.
GAAP gross margin came in at 50.6%, down from 52.5% in the year-ago period and also slightly lower than the third quarter's 50.8%.
For the quarter, Wall Street was looking for adjusted EPS of $0.63 on revenue of $112 million. So, the company hit the earnings estimate on the bull's eye and also essentially met analysts' revenue expectation. Proto Labs had guided for adjusted EPS between $0.59 and $0.67 on revenue of $109 million to $115 million. So, both results landed at the midpoint of its outlook ranges.
Cash flow and balance-sheet strength remain high points. In the quarter, Proto Labs generated $32.2 million in cash from operations and ended the quarter (and year) with $173.6 million in cash.
For full-year 2019, the company's revenue rose 2.9% (4% in constant currency) year over year to $458.7 million. It served 47,800 unique product developers during the year, up 4% over 2018. Adjusted EPS fell 8.2% to $2.79.
Revenue results by service provided
|
Manufacturing Service |
Revenue Q4 2019 |
Change (YOY) |
|---|---|---|
|
Injection molding |
$51.5 million |
(4.5%) |
|
CNC machining |
$38.5 million |
0.9% |
|
3D printing |
$15.7 million |
12.8% |
|
Sheet metal |
$5.2 million |
(12.9%) |
|
Other |
$984 million |
26% |
|
Total |
$111.9 million |
(0.8%) |
Data source: Proto Labs. YOY = year over year.
As with last quarter, the 3D printing business had the best revenue performance. This is a mixed blessing because that segment has the lowest margins.
By geographic region, revenue slipped 1.1% year over year to $88.3 million in the U.S., rose 2.2% (4.2% in constant currency) to $19.9 million in Europe, and declined 8.9% (1% in constant currency) to $3.7 million in Japan.
What management had to say
Here's part of what CEO Vicki Holt had to say in the earnings release:
Although macroeconomic headwinds across various industries have resulted in lower than expected purchasing from our customers in 2019, [the company] remains committed to continually improving our offer and delighting our customers. As we enter 2020, we are very excited about enhancements we are making to our e-commerce platform and back-end support systems.
First-quarter 2020 guidance
On the earnings call, CFO John Way outlined the company's weak first-quarter 2020 outlook:
- Revenue in the range of $111 million to $117 million, representing a decline of 3.6% to an increase of 1.6% year over year.
- Adjusted EPS of $0.50 to $0.58, representing a decline of 26% to a decline of 15%.
Going into earnings, Wall Street had been modeling for adjusted EPS of $0.67 on revenue of $115.3 million in the first quarter. So, the company's guidance on the bottom line fell considerably short of the analyst consensus estimate, while the revenue outlook came in a bit lighter than anticipated.
Final thoughts
As I opined after the company released its third-quarter results, "While Proto Labs is a well-run company whose stock should perform well over the long term, most investors may want to favor more recession-resistant stocks now."
