2/5/2014
By David Urani

3D Systems reported guidance today that shocked the Street, as it provided earnings guidance that was way below consensus estimates:

• Guides FY13 EPS $0.83-0.87 (from $0.93-1.03 prior guidance)($0.96 consensus); Revenue guidance within their prior range @ $513-514m ($514.5m consensus).
• Guides FY14 EPS$0.73-0.85 ($1.27 consensus); revenue $680-720m ($673m consensus)
• Stronger than expected professional, lower than expected consumer
• Backlog almost doubled q/q to $28m
• Notes high R&D, manufacturing, marketing investments.
• “Willing to tolerate earnings reduction and even slight gross profit margin compression during this period to substantially accelerate our growth rate and market share”

But before calling the 3D printing space dead and buried it’s important to note that the softness is all on the bottom line while the revenue expectation for 2013 was held right near the consensus and 2014 sales were actually guided above expectations with the high end representing an increase of approximately 40% over 2013. It’s clear demand for their 3D printers remains intact.

As for the bottom line miss they’re pinning it on investments related to their rapid growth, including marketing, R&D and production capacity. However we do note they’re expecting to take a gross margin hit which suggests some competitive price pressure could also be at hand.

Likewise, Stratasys (SSYS) put out a similar earnings warning last month noting its own spending initiatives on growth. We also note that SSYS’ Makerbot acquisition has proved to be a great success thus far, and their Replicator printers are a big hit. This could account for some of DDD’s aforementioned shortfall in consumer demand and gross margin pressure.

It does appear DDD and SSYS have run into some growing pains and when stocks are priced with extremely high expectations, as theirs are (DDD fwd PE 50 and SSYS fwd PE 51), these kinds of speed bumps take their toll on share price. But the long term success story of 3D printing looks like it’s still intact and the rapid demand growth in the industry is very real; so much so that perhaps DDD and SSYS are scrambling just to keep up.

David Urani
Wall Street Strategies

Add a Comment!