3D Systems' Profit Misses Expectations As Spending Jumps

Investor's Business Daily

A doubling in 3D printer sales fueled a 45% jump in second-quarter revenue for 3D Systems, but its profit missed analyst expectations on higher-than-expected expenses.

3D Systems (DDD) shares fell 4.9% on the results, released early Tuesday. Rival 3D printer makers Stratasys (SSYS) and ExOne (XONE) fell 5.3% and 6.4%, respectively.

3D Systems is the largest of the three publicly traded 3D printer companies in the U.S. All have been top-performing stocks this year, as industry executives say their field is early in a long-term growth cycle.

Q2 marked the 14th straight quarter of double-digit sales growth for 3D Systems, which reported sales of $120.8 million. Stratasys, which is set to report its Q2 results before the market opens Aug. 8, posted triple-digit revenue growth last quarter, preceded by 11 straight quarters of double-digit growth. ExOne burst onto the scene in February with an initial public offering that soared 47% on its first day.

"We have come to believe that right now is a unique moment in our business," 3D Systems CEO Avi Reichental said in a conference call with analysts Tuesday. The level of interest in his company's printers, he said, is "unprecedented.

Reichental said the "heavy demand" for his company's printers caused 3D Systems to double spending on research and development. And total operating expenses rose 46% in Q2. The company reported EPS minus items of 20 cents, 4 cents below the consensus estimate of analysts polled by Thomson Reuters. EPS rose 11%, the slowest earnings growth since the company started making a profit in 2009.

The company released nine printers in the first half of 2013, "and we expect to deliver a greater number of significant new products during the second half of this year," Reichental said.

Still, the earnings miss was "surprising," Daniel Holland, an analyst with Morningstar, said in a research note.

He also said 3D Systems has been on an "acquisition binge" in the last few quarters, "opening it up to integration risk as well as potential margin dilution.

On the other hand, Holland said 3D printing is receiving lots of publicity, "leading to a rapid increase in demand.

3D printing is a production process in which a three-dimensional object is created by repeatedly depositing successive layers of resin or powdered material based on a 3D software model. The systems are used in the auto, aerospace, industrial and health care industries, among others.

3D Systems offers printers that range from million-dollar-plus high-end industrial systems down to consumer printers that retail for as little as $1,300. In Q2, the company reported $54 million in printer sales. Sales of printer materials rose 12% to $29 million. Its services business revenue rose 19% to $37 million.

In late June, Staples (SPLS) became the first major U.S. retailer to sell 3D Systems' low-end Cube printer online and in select stores, to an "enthusiastic customer reception," Reichental said on the call. Staples plans to expand in-store availability from "a couple of dozen stores today to a couple of hundred stores over the next few months," he said.

The company this week also announced that Japan's largest consumer and electronics retailer, Yamada Denki, has started selling the Cube in select stores.

3D Systems maintained full-year EPS guidance in the range of $1.05-$1.20, up from 83 cents in 2012, vs. views of $1.06.

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