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Proto Labs Stock Takes a Nearly 13% Hit on Weak Guidance

By Beth McKenna - Feb 7, 2020 at 7:00PM

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The contract manufacturer's Q4 earnings met Wall Street's modest expectations, but investors were not pleased with its light Q1 outlook.

Proto Labs (PRLB -1.99%) 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.

A worker standing next to a 3D-printing machine inside a Proto Labs facility

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." 

Three of my favorite stocks to weather a recession are a snack-food maker, a water utility, and an electric utility. 

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Stocks Mentioned

Proto Labs, Inc. Stock Quote
Proto Labs, Inc.
PRLB
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