3D Systems' Earnings Reflect a Continued Challenging Market; Stock Drops 10%
3D Systems(NYSE: DDD)reported its fourth-quarterand full-year 2016 earnings before the market opened on Tuesday. For the quarter, the largest publicly traded pure-play diversified 3D printing company posted a year-over-year revenue decline of 9.5%, while adjusted earnings per share fell 21%.
Along with fellow industry leader Stratasys, the company has struggled to grow revenue since a widespread slowdown in demand for its 3D printers began two years ago. Excess capacity in the field and a lengthening of sales cycles due to increased competition are likely two main factors at play.
This was the third quarterly report that covers a period for which Vyomesh Joshi -- appointed last April -- has been CEO.
Shares of 3D Systems dropped nearly 10% soon after the market opened and have been struggling throughout the day, as of this writing on midday Tuesday. The market's reaction is likely due to the company's fourth-quarter revenue and 2017 revenue guidance coming in lighter than Wall Street analysts were expecting. The stock has gained about 46% for the one-year period through midday on Tuesday, versus the S&P 500's total return of approximately 24%.
3D Systems' quarterly key numbers
|
Metric |
Q4 2016 |
Q4 2015 |
Year-Over-Year Change |
|---|---|---|---|
|
Sales |
$165.9million |
$183.4 million |
(9.5%) |
|
Operating income |
$4.1 million | ($565.9 million) | N/A |
|
Adjusted operating income |
$16.8 million | $21.2 million | (20.8%) |
|
Net income |
$5.2 million | ($604.5 million) | N/A |
|
Adjusted net income |
$16.7 million | $20.9 million | (20.1%) |
|
GAAP earnings per share (EPS) |
$0.05 | ($5.32) | N/A |
|
Adjusted EPS |
$0.15 |
$0.19 |
(21.1%) |
Data source: 3D Systems. GAAP = generally accepted accounting principles.
For the quarter, 3D Systems' gross profit margin improved to 50%, up from 47.7% in the year-ago period, excluding charges related to discontinued consumer products. The companygenerated $18.7 million of cash from operations during the quarter and$56.9 million for the full year, and it ended the year with $184.9 million of cash on hand compared to $155.6 million at the end of 2015.
For the full year 2016, revenue decreased 5% to $633.0 million compared to $666.2 million in 2015, which included approximately $20 million of revenue from consumer products that the company discontinued at the end of 2015. Excluding 2015's revenue from consumer products, 2016 revenue dipped about 2% year over year. GAAP loss per share narrowed significantly to $0.35 from $5.85, and adjusted earnings per share increased more than 70% to $0.46 from $0.27 in 2015.
3D Systems didn't provide guidance for 2016. For some context -- though investors shouldn't pay much attention to Wall Street's near-term estimates -- analysts were looking for fourth-quarter adjusted EPS of $0.13 on revenue of $176.76 million. So, 3D Systems beat the earnings estimate by $0.02, but it came in light on revenue.
Image source: 3D Systems.
Segment results
|
Segment |
Q4 2016 Revenue |
Q4 2015 Revenue |
Year-Over-Year Change |
|---|---|---|---|
|
Product |
$100.0 million |
$116.0 million |
(13.8%) |
|
Service |
$66.0 million |
$67.4 million |
(2.1%) |
Data source: 3D Systems.
Overall in the quarter, revenue declined 9.5% as demand from industrial customers combined with growth in software and healthcare services were not enough to offset the impact of weaker sales of professional printers and on-demand services.
For the full year 2016, year-over-year revenue change by business was as follows:
- Healthcare (spans both products and services): up 5%
- Materials (within products segment): up 4%
- Software (within products): up 12%
- 3D printers (within products): down 21%
- On-demand parts (within services): down 18%
What management had to say
CFO John McMullen had this to say in the press release:
2017 guidance
3D Systems provided full-year 2017 guidance as follows:
|
Metric |
2017 Guidance |
Projected Year-Over-Year Change |
|---|---|---|
|
Revenue |
$643 million to $684 million |
2% to 8% |
|
GAAP (EPS) |
$0.02 to $0.06 |
N/A (loss of $0.35 in 2016) |
|
Adjusted EPS |
$0.51 to $0.55 |
10% to 20% |
Data source: 3D Systems.
3D Systems also said it expects to continue to generate positive cash flow from operations in 2017.
Going into earnings, analysts were looking for 3D Systems to post adjusted EPS of $0.51 on revenue of $684.8 million. So, Wall Street was likely pleased with the company's adjusted EPS guidance and disappointed with the revenue guidance. Nonetheless, the revenue does reflect a modest improvement from 2016. Moreover, it's good news that the company expects to return to profitabilityfrom a GAAP standpoint in 2017.
10 stocks we like better than 3D SystemsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now...and 3D Systems wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 6, 2017.
Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool has a disclosure policy.