Why Is 3D Systems (DDD) Down 22.8% Since Last Earnings Report?

A month has gone by since the last earnings report for 3D Systems (DDD). Shares have lost about 22.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is 3D Systems due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

3D Systems Reports Q4 Earnings

3D Systems’ fourth-quarter 2019 earnings of 5 cents per share topped the Zacks Consensus Estimate of a penny. Moreover, the company reported revenues of $164.6 million, which marginally beat the consensus mark of $164 million.

However, both top and bottom lines fell on a year-over-year basis. Quarterly revenues were down 8.9% from the year-ago quarter’s reported figure of $180.7 million. Quarterly earnings plummeted 50% from the year-ago quarter’s 10 cents.

Decline in manufacturing activity and industrial production, which resulted in an overall fall in customer demand, affected the business. In addition, prevalent headwinds due to ordering patterns of a large enterprise customer and the temporarily-suspended operations of factory metal systems were an overhang on overall revenues.

The sale of 3D Systems’ entertainment business also depressed top-line growth. Excluding the entertainment business, revenues declined 7.3% year on year.

Nonetheless, the company’s efforts to simplify its cost structure by lowering headcount, and trimming cost of sales and operating expenses were a positive.

Quarterly Details

3D Systems reported year-over-year declines across all its segments, except the Materials business. Material revenues grew 7.3% to $45 million in the December-end quarter.

The Printer division revenues declined 22.8% to $33.6 million due to soft macro-industrial environment, timing of large enterprise customer orders, and delay in factory metals printing shipments.

3D Systems’ Healthcare segment revenues fell 5.9% to $54.9 million, mainly due to ordering pattern of a large enterprise customer. Excluding the same, Healthcare revenues slid 2.3%.

The company’s On Demand revenues were down 17.2% to $23 million. Headwinds associated with the suspension of federal contracting by the U.S. government and decline in manufacturing activity chiefly dented the segment’s overall performance.

Software revenues slipped 10.2% year over year to $25.8 million. This year-over-year decline primarily resulted from weakness in overall industrial manufacturing and the European automotive market. The company expects that apart from typical seasonal declines, the first-quarter 2020 Software sales will likely be hurt by the Coronavirus outbreak in China.

3D Systems introduced 14 production materials last year, bringing the total product portfolio count to more than 130 3D printing materials.

Margins

In the reported quarter, non-GAAP gross profit declined 13.9% year over year to $72 million, while margin shrunk 250 basis points to 43.8%. This decrease was primarily due to factory utilization, unfavorable revenue mix and inventory adjustments.

In the fourth quarter, the company’s non-GAAP operating expenses declined 12.3% to $66.4 million. This year-over-year decline was chiefly due to the company’s sustained focus on lowering cost structure, and favorable timing of customer-funded research and development. Non-GAAP SG&A costs were down 5.7% and non-GAAP R&D expense slid 27.2%.

Cash Flow and Balance Sheet

3D Systems ended 2019 with cash and cash equivalents of $133.7 million compared with the $110 million recorded at the end of 2018. The company generated $21.5 million of cash from operational activities during the fourth quarter and $31.6 million for 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -25% due to these changes.

VGM Scores

Currently, 3D Systems has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 3D Systems has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.