Stratasys’ stock is limping badly coming into an earnings report expected Monday.
The once-beloved maker of 3-D printers is wrestling with eight lawsuits and much angst after last month’s bombshell that it will lose at least $116 million this year and at least $10 million next year.
The prime culprit? Problems found at the much-ballyhooed MakerBot unit that Stratasys bought in 2013 for more than $400 million.
It’s the first major setback for a company and industry that enjoyed explosive growth over the last few years as 3-D printing enthusiasts couldn’t get enough of the fast, innovative technology that has permanently altered the manufacturing landscape.
Company officials declined to talk about the mounting lawsuits, the stock’s crash or sour perceptions that erupted Feb. 2.
In a preliminary earnings report, Stratasys said annual 2014 losses will reach $116 million to $129 million. That’s despite 2014 sales that soared 54 percent to $750 million.
Stratasys, which is based in Rehovot, Israel, with U.S. headquarters in Eden Prairie, shocked investors with the news that the loss would include a $110 million charge in the fourth quarter due to MakerBot.
Two years ago, the entity gave Stratasys a welcome toehold into the fast-growing world of consumer “desktop” 3-D printers. Until then, it had specialized in contract manufacturing and making large, sophisticated 3-D printers for commercial and industrial customers like General Electric, Ford and General Motors.
Wall Street loved MakerBot’s small but gutsy diversification.
But last year, customers complained that some MakerBot models had defective extruder heads that kept clogging. Suddenly, the machines — which are newly sold in Home Depot, Staples and Sam’s Club stores — were being returned.
Last quarter, MakerBot sales grew just 7 percent and it posted huge losses.
In a statement, Stratasys officials did not discuss the extruder problem. Instead, they noted that the new attempt to sell the machines in Home Depot, Staples, Sam’s Club and other stores had introduced “less predictable sales patterns and reorder rates … into the business model.”
Investors didn’t buy it.
The stock plunged 30 percent in a single day and now trades about $61.50 a share. That’s less than half of the $131-a-share 52-week high.
In the last month, six Wall Street analysts downgraded their stock recommendations, while eight law firms sued Stratasys. The lawsuits allege securities fraud and seek class-action status on behalf of angry investors who expected Stratasys to issue more realistic forecasts for MakerBot and the entire fiscal 2014 year.
Piper Jaffray equity analyst Troy Jensen said the magnitude of Stratasys’ missed earnings “caught us off guard.” He’s not concerned about litigation, which he’s seen in plenty of disappointing earnings cases.
But, he said, “investor sentiment for this [3-D printing] group and Stratasys specifically will remain an issue for the next several quarters. Stratasys shares will remain depressed and out of favor until better execution and upward revisions are more sustainable.”
Jensen added that Stratasys’ woes should be short term. His message to clients: “The consumer side sucks. You want to be invested in the commercial side of [3-D printing]. That is where they are executing well. If you strip out MakerBot, the business had 31 percent organic growth, which is fantastic.”
He and other analysts expect Stratasys to branch further into “printing” strong but light airplane parts; one-of-a-kind implantable medical devices; and other parts that will help manufacturers.
“The airline and aerospace industry [are] getting really excited about this 3-D additive manufacturing industry because of its weight reduction potential,” Jensen said. “Right now, less than 1 percent of plane parts are made using this technology. That will grow.”
General Electric and other buyers of commercial 3-D printers want to print sturdy plane parts made of hollow honeycomb or spiderweb structures instead of solid heavy metals. Such weight reductions will save millions in fuel costs, Jensen said.
He’s not the only one bullish about the future of 3-D printing, which uses computers, meltable plastic string and design software to build three dimensional parts and prototypes. The technology dispenses thousands of tiny layers of plastic in specific patterns and thicknesses until the desired shape and product are achieved.
“Stratasys believes that additive manufacturing is poised to enter a new phase of increased adoption by manufacturers in a broad range of industries, including global manufacturing enterprises,” Stratasys CEO David Reis said last month.
He noted that Stratasys will spend millions on new equipment and products that solve customer problems and spur long-term growth. Reis predicted annual revenue could reach $940 million by 2015 and $3 billion by 2020.
But the company’s not out of the woods just yet.
The company is expected to report Monday that it will lose money in fiscal 2015. In the preliminary report last month, it forecast losses of $10 million to $23 million, or 20 to 40 cents a share for the year.
The depressed outlook badly missed Wall Street expectations. Analysts had expected positive earnings of $2.59 a share.