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Why 3D Systems Corporation Shares Plummeted

By Steve Symington - Feb 5, 2014 at 12:15PM

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Is 3D Systems' plunge meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of 3D Systems Corporation (DDD 2.19%) plunged nearly 28% Wednesday morning after the company disappointed Wall Street with its preliminary full-year 2013 earnings results and 2014 guidance.

So what: Full-year 2013 sales are now expected to be in the range of $513 million-$514 million, which is well within the company's previously raised guidance for sales of $500 million-$530 million. Analysts, on average, were modeling slightly higher 2013 sales of $514.24 million.

However, 3D Systems also anticipates adjusted earnings per share of $0.83-$0.87, or significantly below its previous guidance of $0.93-$1.03. Meanwhile, analysts were looking for adjusted earnings of $0.96 per share.

Finally, 3D Systems issued full-year-2014 guidance for revenue in the range of $680 million-$720 million, and adjusted earnings per share of $0.73-$0.85. By contrast, analysts were expecting significantly higher 2014 earnings of $1.27 per share, but on much lower sales of $671.29 million.

Now what: If you're experiencing earnings deja vu today, it's because 3D Systems management offered nearly the exact same explanation for its "weak" guidance as Stratasys did three weeks ago.

Specifically, they insist while 3D Systems' gross margin was materially unchanged, adjusted earnings will remain depressed primarily because of increased investments in sales, marketing, and R&D -- all of which are great things to see from high-tech companies like 3D Systems as they shuffle for position in a burgeoning industry.

In fact, that explains why 3D Systems CEO Avi Reichental elaborated, "As we previously stated, we are willing to tolerate earnings reduction and even slight gross profit margin compression during this period to substantially accelerate our growth rate and market share."

All things considered, and as a 3D Systems shareholder myself, that's why I have no problem choosing patience over panic today.

Steve Symington owns shares of 3D Systems. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool owns shares of 3D Systems and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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