A month has gone by since the last earnings report for Stratasys (SSYS). Shares have added about 8.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Stratasys 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.
Stratasys Q3 Earnings Top, Revenues Miss, View Cut
Stratasys reported third-quarter 2019 earnings of 12 cents per share, which topped the Zacks Consensus Estimate of 10 cents. Moreover, the bottom line was higher than the year-ago figure of 11 cents.
However, Stratasys’ revenues of $157.5 million missed the consensus estimate of $162 million and decreased 2.8% year over year.
Economic weakness in Europe, which affected capital investments and spending in the automotive and industrial machinery markets in that region, was a major headwind. Moreover, the adverse impact of foreign exchange rates in Europe and Asia Pacific affected the top line.
However, continued strength in the Americas, particularly in the Fortus platform, and F123 Series and J750 full color, multi-material 3D printers was a breather.
Segment wise, Products revenues fell 3% from the year-ago quarter to $106.3 million. The figure was down 2% in constant currency. The decline was due to weakness in Europe and Asia that affected systems sales in those regions.
Within Products revenues, System revenues decreased 9%. Consumables revenues grew 3% year over year.
Revenues from Services decreased 2% to $51.1 million. However, within service revenues, customer support revenues increased 3% year over year.
Meaningful growth in aerospace, automotive, healthcare and dental was encouraging. Moreover, strong sales of J7 Series and PolyJet acted as a tailwind.
Sales growth of production-focused 3D printers and materials was witnessed in North America aerospace segment. Early adoption of the recently launched Aircraft Interior Solution was also encouraging.
The company secured several large deals, including a large multi-unit deployment to a leading automotive OEM in the Americas.
Additionally, the company plans to expand its ownership stake in Xaar 3D, its joint venture with Xaar PLC, to develop additive manufacturing solutions based on High Speed Sintering technology.
Stratasys’ non-GAAP gross profit decreased 2.4% from the year-ago quarter to $82.5 million. Non-GAAP gross margin expanded 30 basis points (bps) to 52.4% due to a higher mix of high-end products in revenue sources.
Non-GAAP operating expenses decreased 3% year over year to $74.4 million due to R&D investments in new product introductions.
Non-GAAP operating income totaled $8.1 million, down 1.2%. Operating margin expanded 8 bps to 5.14%.
Balance Sheet and Cash Flow
The company exited the quarter with cash and cash equivalents of $347.1 million compared with $366.3 million at the end of the previous quarter.
As of Sep 30, 2019, there was no long-term debt.
Net cash used in operating activities in the quarter was $3.6 million.
For full-year 2019, the company reduced its revenue guidance. Revenues are now expected in the range of $640-$655 million compared with previously guided range of $670-$700 million.
Non-GAAP earnings per share for the full year are expected between 55 cents and 70 cents.
Non-GAAP operating margin is projected to be in the 5.5-6.5% band.
Capital expenditures are estimated to lie within $30-$45 million.
Management also expects flat or slight decline in revenues year over year in the fourth quarter.
Management is optimistic about its product lineup, which is expected to expand its addressable markets, resulting in accelerated growth from 2020.
Stratasys introduced two new advanced PolyJet systems, new manufacturing-focused FDM materials, and a new offering in the MakerBot Method line of performance 3D printers. All of these have received initial positive response and are expected to be key drivers going forward.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -31.11% due to these changes.
Currently, Stratasys has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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, Stratasys has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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