3D Systems Corporation (DDD - Free Report) posted a third consecutive earnings beat in its fourth-quarter 2016 results, as its adjusted earnings (including share-based compensation expense) of 6 cents per share for the quarter came above the Zacks Consensus Estimate of 4 cents.
However, non-GAAP earnings came in at 15 cents per share, down 21% from the prior-year tally of 19 cents per share. Top-line decline, driven by poor sales of professional printers and on-demand services, put pressure on the bottom line.
Shares fell 4.4% at one point in late trading in the aftermath of the results, as investors were disappointed with the company’s negative year-over-year earnings and revenue growth.
On a GAAP basis, the company posted earnings of 5 cents per share, much better than the loss of 5.3 cents reported in the year-ago quarter. Despite soft revenue growth, lower operating expenses boosted the bottom line.
For full-year 2016, 3D Systems generated non-GAAP earnings of 46 cents per share, which reflected impressive growth of 70.4% over the prior year.
Inside the Headlines
The 3D printer maker reported revenues of $165.9 million for the quarter, reflecting a year-over-year decrease of 9.5%. Steady demand for the company’s software and healthcare solutions, along with strong industrial sales, could not offset the impact of weak sales of professional printers and on-demand services. Revenues also missed the Zacks Consensus Estimate of $176.1 million by a small margin.
For full-year 2016, 3D Systems generated revenues of $633 million, down 5% from the prior-year tally of $666.2 million.
Coming back to the quarter, adjusted gross margin expanded 230 basis points on a year-over-year basis to 50%, aided by the company’s shift from consumer products to materials, software and healthcare solutions, which carry higher margins.
Also, the company’s operating expenses descended meaningfully (down 11.4%) to $78.8 million, as SG&A (down 13.2%) expenses fell significantly,driven by the company’s successful productivity improvement efforts. R&D expense (down 5.9%) also decreased year over year.
Despite challenging market conditions, 3D Systems continues to focus on expanding its market share and exploring diverse market opportunities. The company has been driving improvements in its key processes, infrastructure and operations.
3D Systems recently forged an important partnership with PTC. This alliance will see the two leaders joining forces to integrate 3D Systems’ 3D Sprint SDK into PTC’s flagship – Creo CAD platform. This, in turn, will deliver seamless CAD-to-print functionality to Creo users, in addition to an entire set of print management tools.
During the quarter, 3D Systems rolled out 3D Sprint 2.0, a productivity-enhancing print management and print optimization software, developed for 3D Systems’ plastic 3D printers. In addition, the company undertook operational restructuring initiatives, like improving the sales network as well as undertaking lean manufacturing initiatives, in supply-chain operations.
However, the company’s revenues from 3D printing products and services continue to be seriously undermined due to prolonged challenging market conditions that are hampering customers' capital investment cycles and hurting demand across all geographies as well.
3D Systems is committed to channelizing its resources toward more profitable markets. The company recently announced its decision to cease the production of Cube, the entry-level consumer 3D printer. Although it might hurt revenues in the short term, we believe that it will direct the company’s resources toward higher-margin products, and accelerate next-generation capabilities and thus enhance profitability over the long run.
Cash Flow and Balance Sheet
3D Systems ended the quarter with cash and cash equivalents of $184.9 million, up significantly from the tally of $155.6 million a year back. For full-year 2016, cash generated from operating activities came in at $56.9 million, as against cash used in operating activities of $3.1 million in the comparable period last year.
3D Systems Corporation Price, Consensus and EPS Surprise
Concurrent with the earnings release, the company provided its guidance for full-year 2017. 3D Systems estimates revenues in the range of $643–$684 million, which would reflect year-over-year growth of 2–8% in 2017. In addition, GAAP earnings per share are projected in the range of 2–6 cents per share, while non-GAAP earnings are expected to come between 51–55 cents per share.
Over the past few quarters, 3D Systems has been experiencing unfavorable broader market conditions that have badly hit its financial performance. The company has been grappling with strong volatility in macroeconomic factors, such as economic slowdown, inflation, currency fluctuations, commodity prices and credit availability. These conditions continue to affect the company’s performance.
However, the company is taking initiatives to channelize its resources into more lucrative areas in professional and industrial markets. 3D Systems also conducted numerous successful product launches and strategic deals, which could aid the company in combating these persistent challenges in the near future.
Also, 3D Systems’ healthcare business continues to gain traction, driven by rising demand from customers who print medical and dental devices. The company is also focusing on enhancing its existing 3D printers’ line, reinforcing partnerships and boosting productivity.
3D Systems presently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the sector include Check Point Software Technologies Ltd. (CHKP - Free Report) , Dassault Systemes SA (DASTY - Free Report) and Aspen Technology, Inc. (AZPN - Free Report) . Check Point Software and Dassault sport a Zacks Rank #1 (Strong Buy), while Aspen Technology carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
Check Point Software is a leading provider of policy-based enterprise security and traffic management solutions. The company has a solid earnings surprise history for the trailing four quarters, having beaten estimates thrice, for an average beat of 6%.
Dassault Systemes, a globally recognized leader in CAD/CAM/CAE and PDM II markets, has a striking earnings surprise history for the trailing four quarters, beating estimates all through for an average positive surprise of 11%.
Aspen Technology is a recognized expert and leading provider of award-winning process optimization software and services. The company has beaten estimates consistently each time over the trailing four quarters, with an average positive surprise of 20.3%.
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