Shares of 3D printing solutions provider, Stratasys Ltd. (SSYS), plunged more than 27% yesterday in after-hour trading following the company’s announcement regarding the 2014 guidance cut and weaker-than-expected 2015 outlook. The company lowered its 2014 guidance to reflect an anticipated goodwill impairment charge and slower revenue growth at its MakerBot business.
Stratasys now projects revenues for 2014 within the $748–$750 million range, down from $750–$770 million. This represents year-over-year growth of approximately 54%, including organic growth of 31%.
Furthermore, the company lowered its non-GAAP earnings forecast for the year to $1.97–$2.03 per share from the earlier forecasted range of $2.21–$2.31. On a GAAP basis, Stratasys expects to report a loss in the range of $2.32 to $2.58 per share. Currently, the Zacks Consensus Estimate is pegged at $1.76.
This is the second time that Stratasys has lowered its 2014 guidance. In the third-quarter 2014 earnings release, the non-GAAP earnings forecast was lowered to $2.21–$2.31 per share from $2.25–$2.35 primarily due to the dilutive impact of the GrabCAD acquisition.
Further, the company expects fourth-quarter 2014 revenues to increase approximately 38% year over year, translating to nearly $214 million. This includes an organic growth of 25%. However, this was short of the Zacks Consensus Estimate of $231 million.
According to Stratasys, the fourth-quarter results have been negatively impacted by slower revenue growth at its MakerBot business. Challenges associated with the introduction and scaling of its new product platform and Stratasys' rapidly evolving distribution model primarily affected MakerBot business in the fourth quarter.
Apart from lowering the 2014 guidance, Stratasys provided a weaker-than-expected outlook for 2015. The company is expecting revenues in the range of $940 to $960 million and non-GAAP earnings of $2.07 to $2.24 per share; both lower than the respective Zacks Consensus Estimate of $1.0 billion and $2.51 per share.
The company is projecting its operating expenses to increase in 2015 as a result of its new investment plans which aim at achieving annual revenue of $3.0 billion in 2020. In this regard, Stratasys intends to invest in product and infrastructure development (to offer a wide range of products and solutions across industries, especially to manufacturing-related businesses), and enhance customer relations.
As a result, it expects incremental annual operating expenditure of 2% of anticipated revenues over the next two to three years. Total operating expenses for 2015 are expected to come in the range of 46–47% of total anticipated revenue.
Further, during 2015, the company intends to incur capital expenditure in the range of $160 to $200 million while the effective tax rate is anticipated to be between 5% and 10%.
Weakness at the MakerBot business is signaling some softness in the market. Stratasys’ 2014 outlook cut and weak 2015 guidance did not go down well with the investors and its effect could be seen in the share prices of other 3D printing solutions providers. Stratasys’ arch rival 3D Systems Corporation’s (DDD) shares fell 7.4% in after-hours trading. Other competitors, Voxeljet AG (VJET) and The ExOne Company (XONE) witnessed a decline of nearly 5% and 6%, respectively.
Our Take
Once only conjecture, 3D printing’s potential to revolutionize manufacturing is fast becoming a reality. Companies are now working on solutions that range from simple make-to-stock orders to complex engineer-to-order production strategies. Riding on the demand wave, Stratasys is strategizing to expand the reach and adaptability of 3D printing across various industries.
In a recent research report, PricewaterhouseCoopers predicted that 3D printing technologies will take giant strides over the next three to five years, gaining relevance in manufacturing, commercial, military and complex weapon parts and system components.
According to a report available at ReportsnReports.com, the global 3D printing market is expected to increase at a CAGR of 23% from 2013 to 2020 and hit $8.41 billion buoyed by higher demand in the healthcare and aerospace market. Moreover, pent-up demand for 3D printing products is expected from automotive consumer products, government and defense, industrial/business machines, education research and other (arts and architecture) segments.
Additionally, TechNavio forecasts the global 3D Printer market to grow at a CAGR of 45% (2014-2019). Being the 3D printing industry leader, Stratasys is well poised to grab maximum market share given its sizable installed base.
In order to capitalize on the industry’s robust prospects and consolidate market share, established companies might take the acquisition route for quick growth. Over the last few years, Stratasys has been very active in this space and acquired several 3D printing companies such as MakerBot and Objet Ltd.
However, rapid growth is bringing financial pressures in its wake, as the company has to constantly invest in research and development and also raise funds for its acquisitions. Moreover, severe competition in the industry, amid persisting economic uncertainty, coupled with foreign currency risks, remain the concerns.
Currently, Stratasys carries a Zacks Rank #4 (Sell).
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