3D Systems Corporation's Earnings on Wednesday: 3 Things to Watch

By Steve HellerFool.com

3D Systems will report its third-quarter earnings and host a conference call on Nov. 4 at 8:30 a.m. ET. With the Wall Street community calling for 3D Systems to increase third-quarter sales by 8.5% annually to $181.1 million and earn an adjusted profit of $0.07 per share -- 50% less than it did last year -- expectations for the once-beloved 3D printing company are decidedly tempered.

Beyond the headline results, investors should also examine how 3D Systems' underlying business is performing to assess whether the company remains plagued with execution issues or is turning a corner. Here are three areas to watch in Wednesday's report:

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1. Finding Avi Reichental's replacementLast week, 3D Systems announced that its CEO of 12 years, Avi Reichental, was no longer with the company, and that the departure was "mutual" between Reichental and the board. This prompted the board to set up an "executive management committee," headed up by 3D Systems' Co-founder Chuck Hull, to provide ongoing leadership and operational support until a replacement is found. In the meantime, Chief Legal Officer Andrew Johnson will serve as interim CEO and president of the company.

Although it's a tall order for the committee to find someone who's capable of fixing the host of structural and performance issues that Reichental's four-year acquisition spree created, management will have its first opportunity during the conference call to educate investors on how it plans to find a solid replacement. In other words, it's a test for investors to see how serious management is about finding Reichental's successor.

2. Goodwill updateOn Oct. 22, Stratasys surprised investors with a warning that its third-quarter results will fall significantly below its previous guidance. Within the disappointing release calling for third-quarter revenue to fall between 17% and 19% annually, Stratasys also announced that it will take a third goodwill impairment charge of $140 million to $180 million for its beleaguered MakerBot unit, bringing the cumulative total of writedowns to greater than the initial $403 million purchase price.

To make matters more troubling, Stratasys is now conducting a goodwill impairment analysis on other units it's acquired, and disclosed that future writedowns may be on the horizon if units fail to meet management's growth assumptions.

Although 3D Systems has yet to take a goodwill writedown, it seems reasonable that since Stratasys and 3D Systems are direct competitors with many of the same customers, 3D Systems could also be at risk of writedowns. After all, 3D Systems had amassed nearly $915 million of goodwill and intangible assets on its balance sheet from its hyperaggressive acquisition strategy, meaning investors may want to dig into how 3D Systems' goodwill assets are performing.

DDD Goodwill and Intangibles (Quarterly) data by YCharts.

3. The macro pictureIn addition to 3D Systems' internal problems, the macro environment has weakened considerably in the first half of this year. Customer spending in key areas like aviation, healthcare, automotive, and oil and gas has slowed, which management attributed to factors like the aftermath of lower oil prices and currency headwinds. Ultimately, the heightened uncertainty prompted the company to suspend its full-year guidance until it gets a better handle on the situation.

Considering nearly 95% of 3D Systems' second-quarter revenue came from design and manufacturing products for professional users, investors should pay close attention to management's comments about the macro environment.

All eyes on WednesdayWhen 3D Systems reports earnings on Wednesday, focus on how the underlying business is performing, rather than on how investors react to the news. Key into how the company's search for its new CEO is progressing, an update on its goodwill assets, and the health of the macro environment. These areas may help investors determine whether the company deserves another chance to turn things around.

The article 3D Systems Corporation's Earnings on Wednesday: 3 Things to Watch originally appeared on Fool.com.

Steve Heller owns shares of 3D Systems. The Motley Fool recommends 3D Systems and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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