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Why Is 3D Systems (DDD) Down 23.8% Since Last Earnings Report?

Zacks Equity Research
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It has been about a month since the last earnings report for 3D Systems (DDD). Shares have lost about 23.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is 3D Systems due for a breakout? 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 catalysts.

3D Systems' Reports Q4 Earnings

3D Systems Corporation delivered non-GAAP earnings of 10 cents per share for fourth-quarter 2018, higher than with 5 cents in the year-ago quarter. The bottom line also beat the Zacks Consensus Estimate of 6 cents.

This 3D printer maker’s revenues logged $180.7 million in the quarter under review, reflecting a year-over-year increase of 2%. However, the top line missed the Zacks Consensus Estimate of $185 million.

The year-over-year improvement was driven by growth in printer unit and printer revenues in both metals and plastics as well as growth in software and healthcare solutions. However, the company’s lower-priced products witness more demand, which in turn, is increasing the volatility in printer mix.

The tough year-over-year comparison and export-compliance charges in the on-demand manufacturing business remain key challenges in the first half of 2019. Further, the price-mix is likely to remain a headwind this year.

However, management is optimistic about the company’s shift in its investment focus to materials innovations and software growth opportunities.

Quarterly Details

3D Systems’ Healthcare revenues were up 16% to $58.4 million year over year, driven by growth across all categories.

The company’s on-demand manufacturing revenues were up 5% to $27.7 million, aided by growth in a few large orders from industrial customers. However, headwinds related to export compliance and outsourcing changes remain dampeners.

Printer revenues increased 17% and came in at $40.7 million. Meanwhile, printer unit sales skyrocketed 113%, driven by the company’s launch of a printer priced at about $5,000.

Software revenues rose 3% year over year to $26.7 million. Material revenues dipped 2% to $42 million due to a faster-than-expected decline in legacy materials. The company expects revival of materials growth during the second half of 2019.

Geographically, revenues in Americas declined 6% while that of Europe and Asia Pacific increased 11% and 9%, respectively.

Margins

In the reported quarter, non-GAAP gross margin contracted 200 basis points on a year-over-year basis to 46.3%. This downside was mainly due to unfavorable sales mix, increased investment to ramp and launch of products plus lower on-demand manufacturing margins, which more than offset the cost-reduction benefits, achieved from the ongoing supply-chain initiatives.

In the quarter under consideration, the company’s non-GAAP operating expenses rose 2% to $75.7 million due to the company’s persistent investment in new product development and launches, go-to-market strategy, IT infrastructure plus operational improvements. Non-GAAP SG&A increased 4% while non-GAAP R&D expense slipped 2% in the quarter under discussion.

Cash Flow and Balance Sheet

3D Systems ended the fourth quarter with cash and cash equivalents of nearly $110 million compared with $92.1 million in the previous quarter.

The company generated $7.7 million of cash in operational activities during the fourth quarter.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.


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