3D Systems Dives As Revenue Miss Undercuts The Hype

Investor's Business Daily

3D Systems' (DDD) fourth-quarter revenue shortfall heightened concerns Monday about highflying 3D printer stocks.

3D Systems said Q4 revenue rose 45% to $101.6 million. That lagged consensus estimates for $103.9 million.

Earnings per share, on a split-adjusted basis of 26 cents, were a penny above consensus estimates of analysts polled by Thomson Reuters. The 44% EPS gain was the 10th straight quarter of double- or triple-digit growth but a deceleration from the previous quarter.

A 3-for-2 stock split that 3D Systems had previously announced went into effect Monday.

3D shares tumbled 9% to 34.55 after crashing to 30.28 early. Its main rival, Stratasys (SSYS), lost more than 5% to 63.71.

Those two stocks had been among the best performers in the past year, fueled on the belief that 3D printing technology is a big step forward in the design and manufacturing of a wide range of products. Even though 3D printing has been around for 25 years, only in the past year has it hit the mainstream media with articles talking as if it were the next big thing.

President Obama even cited 3D manufacturing in his State of the Union address.

Partly for that reason, expectations were high for 3D Systems leading up to its Q4 report.

Although EPS beat by a penny, gross margins and operating margins came in below the expectations of some analysts. That raised concerns about cost management, said Troy Jensen, research analyst at Piper Jaffray.

Operating expenses rose 55% to $34.3 million.

For 2013, 3D Systems estimated split-adjusted EPS, minus items, in the range of $1 to $1.15. The consensus estimate of analysts is $1.05. It sees revenue at $440 million to $485 million, or growth of 24% to 37%. At the midpoint, that would be its slowest sales growth in four years.

"Industry demand is still healthy," Jensen said.

3D printers create products in a layer-by-layer printing process, using liquid or powdered materials, designed with 3D software. The technology is used in aerospace, automotive, medical and consumer product fields, among many other industries.

3D Systems shares are up 111% in the past year while Stratasys is up 62%, though both are well off all-time highs set in late January.

Investor interest in 3D printing stocks was shown again this month with the initial public offering of ExOne (XONE), which soared 47% in its Feb. 7 trading debut. ExOne fell 3% Monday.

But the nascent sector has been buffeted by critical stories on the investor-oriented website Seeking Alpha. The most recent was from Citron Research, a noted short-selling firm, making a bet they will fall.

Citron said on Feb. 14 that 3D Systems was an overhyped bubble stock, which appeared to be why it, Stratasys and ExOne all fell sharply that day.

"The gyrations in the stock speak to the short interest and people wanting to hammer it," said Jensen. "These stocks move fast and quick.

"I'm still a big fan of the space and its open-ended opportunity," said Jensen.

3D Systems CEO Abe Reichental, was upbeat in the post-earnings conference call.

"We believe that our performance is in line with our plans and expectations and reflects on the potency of our diversified portfolio," he said.

3D Systems introduced 16 products in 2012, including eight new printers, and experienced "a surge in printers and other product demand" in Q4, Reichental said.

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