3D Systems Earnings Preview: What to Watch

3D Systems (NYSE: DDD) is slated to report its fourth-quarter and full-year 2018 results after the market closes on Thursday, Feb. 28.

As was the case last quarter, it's on track to be the first of the two big 3D printing companies to report, as Stratasys is scheduled to release its earnings on Thursday, March 7.

Shares of 3D Systems are up 34.5% in 2019 through Feb. 15, outpacing the S&P 500's 11% return, though trailing Stratasys stock's torrid 57.1% gain.

Key numbers

Here are the year-ago quarter's results to use as benchmarks.

For context, Wall Street expects 3D Systems to deliver fourth-quarter adjusted EPS of $0.07 on revenue of $180.8 million, representing growth of 40% and 2%, respectively, year over year. While long-term investors shouldn't place much importance on the Street's near-term estimates, they can be helpful to know, because they often help explain market reactions.

Many investors are likely to be watching revenue closely, as year-over-year growth decelerated last quarter to 7.6%, from 10.7% in the second quarter, after accelerating from 6.1% in the first quarter. On the profitability front, last quarter's results were a mixed bag. Adjusted EPS flipped to positive, from negative in the year-ago period; however, the company used $12.1 million of cash in operations. So investors will want to be keeping an eye on cash flows.

3D printer sales

As always, investors should focus on sales of 3D printers. While this business probably comprises less of 3D Systems' total revenue than many investors might think -- 21% last quarter -- it's crucial. 3D printer sales drive future sales of print materials -- and these materials sport high margins, making them an engine for profit growth.

Last quarter, revenue from 3D printer sales rose 17% year over year, while the number of units sold soared 93%. In the second quarter, revenue surged 41% year over year on unit growth of 37%.

Investors can probably expect continued robust sales of metal 3D printers. Last quarter, demand for 3D Systems' new ProX DMP (direct metal printer) 350 outstripped the company's manufacturing capacity. Management said on that quarter's earnings call that it expects the company to be production constrained again in the fourth quarter, but that capacity should be ramped up enough to meet demand in 2019.

Figure 4 sales and outlook

Last quarter, management pushed back the timeline to 2019 for starting to ship modular Figure 4 systems. (Figure 4 is a fast, scalable stereolithography 3D printing system for producing small plastic parts.) Originally, the company expected to start shipping these systems in late 2017 or early 2018, and then the second half of 2018.

Are sales taking longer to materialize than the company initially anticipated simply because these are larger, pricier systems, or are potential customers largely not enamored enough with the systems to buy them? Investors should expect an update on the earnings call about the company's progress selling Figure 4 systems.

Figure 4 is probably integral to 3D Systems' long-term success. It's the company's entrant into the fast production 3D printer space -- a space that's projected to grow notably over the long term. HP and venture-funded Carbon were the early entrants in this realm.

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 quadrupled 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.

See the 10 stocks

*Stock Advisor returns as of January 31, 2019

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool has a disclosure policy.