Wednesday, July 27, 2011

Stratasys (Nasdaq — SSYS) -- HP Partnership Yields Lackluster Result

Stratasys (Nasdaq: SSYS $29.70) reported underwhelming second-quarter results. An agreement with Hewlett-Packard to distribute Stratasys’s lower-end 3D printers has not produced, with 18% fewer printers sold this year compared to last. The HP deal didn’t open the distribution channels Stratasys believed it would – a proposed Q1 launch in the U.S. was postponed due to turmoil at HP. The companies are working together to correct this, as their agreement was renewed through September 2012, but it will take some time to recover.

Stratasys will accelerate its independent channel development. The HP agreement currently serves only five countries in Europe – HP plans to expand its European markets later this year, but that remains to be seen. The company reaffirmed its commitment to HP, but Stratasys is intent on increasing distribution by other means.

The stock price fell eight points from 37.97 after this morning’s earnings report. Stratasys’ direct competitor, 3D Systems, also fell, though not as far. 3D Systems reports its earnings tomorrow – if that company's sales are also below expectation it could mean that 3D printing isn’t expanding as rapidly as some believed it would. There are other factors at play, and we’ll have to wait until 3D Systems reports to get a clearer picture.   

Shipments were down in the first six months of 2011, to 1,257 units compared to 1,291 the year prior, a 3% decrease. Shipments for the quarter were up 1% to a record 690 units, from 682 in Q2 2010.

The company did post record revenues of $35.5m ($37.6m including revenue from the company’s acquisition of Solidscape), up 18% from $30.5m in 2010. The bulk of this came from sales of the high-end Fortus. Sales of the machine rose 67% compared to last year. Consumable material revenue increased 20% and machine maintenance revenue went up 12%.

Earnings per share rose to $0.23 this quarter, up 92% from $0.12 in the same period last year. Share earnings are projected at $0.90 for 2011 due to the Fortus machine’s high margins. That estimate could be a little high in light of recent developments. We’ve dropped our revenue estimate to $155m for the year, from $160m; and from $200m in 2012 to $185m.

What once seemed a promising investment is now clouded in uncertainty. It will take time for Stratasys to find new distributors to replace HP. In the long term, the technology’s potential remains hopeful.

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