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Stratasys Earnings Preview: What to Watch Next Week

Stratasys Ltd. (NASDAQ: SSYS) is slated to report its fourth-quarter and full-year 2017 earnings before the market open on Wednesday, Feb. 28.

Main rival and fellow diversified 3D printing player 3D Systems (NYSE: DDD) is also scheduled to report the same day -- but after the market close, which should make for an interesting day for 3D printing investors.

Stratasys stock is flat for the one-year period through Feb. 16. For context, the S&P 500 has returned 18.5% over this period, while shares of 3D Systems have plummeted 40.7%.

Key numbers

Here are Stratasys' year-ago results and Wall Street analysts' estimates to use as benchmarks.

Unlike 3D Systems, Stratasys has been doing a good job at meeting or beating Wall Street's earnings estimates so far in 2017. In both the second and third quarters, it easily beat the consensus, while in the first quarter it met expectations. The company did, however, fall short of Wall Street's revenue expectation last quarter, with CEO Ilan Levin saying "Our revenue for the third quarter was partially impacted by several large, multi-system orders that were deferred until October." This revenue should be in the Q4 results.

Beyond the headline numbers, here's what to focus on in Stratasys' report.

3D printer sales

Ideally, investors would like to see a year-over-year increase in revenue generated from 3D printer sales. More realistically, however, even flat sales would be an improvement. Here's Stratasys' 3D printer revenue picture for the last four quarters:

  • Q3 2017: Decline of 6% year over year
  • Q2 2017: Decline of 6%
  • Q1 2017: Decline of 11%
  • Q4 2016: Decline of 4%

For three years, both Stratasys and 3D Systems have been struggling to grow revenue, driven by issues selling their 3D printers. Initially, the primary reason seemed to be that there was a glut of 3D printers in the field due to the companies' strong sales of them in the preceding couple of years. Since 2016, however, increased competition has become a factor, possibly even the primary one. HP Inc. and well-funded start-up Carbon both launched compelling polymer 3D printers for the enterprise market in 2016.

Sales of 3D printers are crucial to Stratasys' razor-and-blade-like business model: Sales of printers drive recurring revenue from sales of the high-margin print materials, along with maintenance contracts.

Progress on next-generation 3D printing technologies

Investors can probably expect management to give an update on the progress Stratasys is making on its next-generation 3D printing technologies targeted at manufacturing applications: Infinite Build (the commercialized version has been renamed), Robotic Composite, and Continuous Build.

Last quarter, management said that the company recently began transitioning into the commercializing phase of the H2000 Large Part FDM 3D Production System. (The demonstrator was called Infinite Build.) Management noted that Stratasys recently delivered a system to a new customer, which it didn't name, following installations on the sites of its development partners, Boeing and Ford. The H2000 system is designed to make large engineering-grade plastic parts, including aircraft interior panels, hybrid structures, and composite tooling.

In short, Stratasys has been doing a commendable job of improving its bottom line by increasing efficiencies. Eventually, however, the company needs to increase revenue in order to grow its earnings. Investors need to see some top-line growth or at least indications that such growth is on the horizon.

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