A month has gone by since the last earnings report for 3D Systems (DDD). Shares have added about 5.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is 3D Systems due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
3D Systems' Reports Q2 Earnings
3D Systems reported non-GAAP breakeven earnings per share in second-quarter 2019 compared with 6 cents a year ago. However, the bottom-line figure surpassed the Zacks Consensus Estimate of a loss of 4 cents.
This 3D printer maker’s revenues of $157 million in the quarter under review declined 10.9% year over year. Moreover, the top line missed the Zacks Consensus Estimate of $162 million. Large enterprise order in the year-ago period caused the tough year-over-year comparison.
Moreover, weakness in the automotive sector in Europe, China and India is a major overhang on the company’s printer hardware and on-demand printing businesses. Further, trade tariffs are adversely impacting the company’s business in Asia.
The company stopped shipments of the Powder Management Units because of a technical snag in the same, which dented revenues.
However, the company’s efforts to simplify cost structure by lowering headcount and trimming cost of sales as well as operating expenses are a positive. The company is looking to cut expenses by $10-$15 million in 2019. 3D Systems also completed the sale of its entertainment business, which will decrease revenues but improve profitability.
Despite the current revenue headwinds, 3D Systems expects printers, materials, healthcare and software to be long-term drivers.
3D Systems’ Healthcare revenues declined 8.1% year over year to $56.4 million. Increase in Healthcare services as well as simulation revenues were offset by the impact of the timing of order from a large customer. Excluding the order of the larger enterprise customer, healthcare revenues grew nearly 11.4%, driven by simulator, dental and advanced manufacturing. Management remains optimistic about the overall demand trends for healthcare including the company’s NextDent 5100 3D printer.
The company’s on-demand manufacturing (ODM) revenues were down 12.4% to $24 million. Headwinds related to business adjustments related to export compliance and outsourcing changes are dampeners. Softness in demand from automotive customers in Europe was also a downside.
Printer unit sales surged 46.4%, driven by Figure 4 platform sales. However, Printer revenues dropped 27.4% to $30 million due to the order timing of a large enterprise customer, the company’s decision to not ship DMP Factory solutions and the tepid macroeconomic industrial environment.
The company anticipates printer unit sales, revenue mix and the overall average selling price to continue fluctuating as the company ramps up sales with new products at prices ranging from $5,000 to more than $1 million. Moreover, macro uncertainty, current slowdown in the market and large capital purchases are persistent challenges.
Software revenues including haptics and scanners slipped 0.5% year over year to $25.1 million due to lower Cimatron product revenues owing to automotive weakness. The company anticipates software to be a long-term catalyst and is evidently, looking at enhancing its software portfolio.
Material revenues fell 8.5% to $41.2 million due to a faster-than-expected deterioration in legacy materials, which countered growth in core and new systems. The company envisions revival of materials’ growth during the second half of 2019.
In the reported quarter, non-GAAP gross margin contracted 150 basis points on a year-over-year basis to 47.4%. However, it improved 320 bps sequentially, backed by revenue mix and an improved cost absorption.
In the quarter under consideration, the company’s non-GAAP operating expenses declined 9.3% to $71.7 million. Moreover, non-GAAP SG&A was down 9.3% and non-GAAP R&D expense was 9.2% lower.
Cash Flow and Balance Sheet
3D Systems ended the second quarter with cash and cash equivalents of nearly $150.4 million compared with $157.3 million in the sequential quarter.
The company generated $18.7 million of cash in operational activities during the second quarter compared with $15.2 million of cash used sequentially.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -20% due to these changes.
Currently, 3D Systems has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 3D Systems has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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