3D Systems (DDD, Financial) is slated to announce its first quarter earnings on May 6 before the market opens. Investors are anxious to find out how the company performed in the quarter, as several challenges seem to be exercising pressure on its top and bottom line as indicated in the preliminary earnings posted by the 3D printing company. Even in the fourth quarter of the previous fiscal year the company had posted a negative earnings surprise of 35%. Let’s quickly catch up on what the company’s preliminary earnings report stated on the expected earnings during the quarter and what analysts are currently opining on the stock.
The preliminary earnings report
When the 3D printing company declared its preliminary first-quarter results recently, it left its investors in a state of confusion as the financial numbers fell below analysts’ expectations and painted a diluted picture for the entire fiscal year. In fact, the stock immediately reacted to the dim result forecast provided by 3D systems on April 24 with the share price slipping to the negative territory by 9.68% on the same day.
The company has estimated that the first quarter revenue would be in the range of $158-160 million while the GAAP loss is projected to be in the bracket of $0.13-$0.15 a share. Non-GAAP earnings are expected to remain in the $0.02-$0.04 per share territory. The Street expectations are standing at $0.17 a share as non-GAAP profit on revenue of $182.8 million for the quarter, hence, the earnings forecast is really dim from the company’s end.
The company has stated that it expects the revenue to be adversely affected by the ongoing macroeconomic headwinds besides being hurt due to the oil price fluctuations and the currency translation impact. Since the dollar remains strong to the Euro or Yen, it has weighed terribly on the company’s sales growth in the quarter. Majority of the commercial clients that operate in the automotive, aerospace and healthcare segments have reduced their printer and material purchases, thereby adding to 3D system’s woes during the quarter.
However, CEO Avi Reichental, defended the preliminary earnings report stating – “We were surprised and disappointed by the abrupt interruption in customer demand late in the quarter from several economic factors that we believe caused our industrial customers to defer their planned investments… We believe the combination of our expanding international business and growing concentration of manufacturing customers made us more vulnerable to the steep currencies decline relative to the U.S. Dollar and aftermath of lower oil prices that curbed aerospace and automotive expenditures.”
The company remains optimistic that the software, services and consumer revenue categories would perform better in the quarter, though such improvement of demand would not completely offset the fall in revenue from industrial customer’s delayed purchases.
The analysts’ opinion
Bookings in the first quarter seem to be strong as clarified by Mr. Reichental in the press release for the preliminary first-quarter earnings – “Several weeks into the second quarter, bookings are ahead of the same period in the first quarter. Specifically, OEMs that paused to assess their own exposure to foreign currency and macroeconomic impacts are beginning to resume their capital investments and are making the purchases they deferred during the first quarter…”
Buoyed by the growth in bookings going forward, analysts are majorly taking a neutral stand 3D systems stock. As per data from Bloomberg, out of total of 25 analysts, 5 rate 3D Systems as a Buy, 13 rates it as hold and 7 rate it as sell stock. As oil price fluctuations and currency headwinds would remain in the entire year, analysts are taking a cautious stand after reviewing the expected results that have been shared by the management of 3D systems.
Though 3D systems claimed that some of its customers that postponed orders showed up in the early part of the second quarter, it did not suggest that such an uptick would persist. In all, it means that weakness in capital spending by the esteemed customers would affect the revenue and profits of 3D system’s first quarter.
Conclusion
Since most of the customers of 3D systems serve the industrial segments they are highly sensitive to macroeconomic shocks that could affect their respective industries or underlying businesses. This in turn is a red flag for the 3D printing company as its revenue from the industrial clients is currently moving southwards leading to its topline coming under pressure as is likely to be felt when it reports the first quarter earnings report tomorrow morning. Let’s stay tuned to assess the actual performance of 3D systems during the quarter.
