3D Systems Q2 Earnings on Tap: What to Expect? (DDD,HP)

The 3D-printing specialist is set to report second quarter fiscal 2016 earnings results after the closing bell. And it has been a tale of two halves for the embattled tech company. Although 3D Systems shares have surged some 40% year-to-date, the past three months have resulted in a decline of more than 26%, including an 8% fall in the past five days. The timing of these declines is no coincidence.

In May, printing giant HP Inc. (HPQ) announced that it will enter the 3D-printing industry with two separate models aimed at the industrial market. HP believes it can make a greater impact on companies that can afford a premium high-capacity equipment. This goes against 3D Systems' earlier failed strategy of targeting the consumer market. How much of 3D Systems' business will the arrival of HP take away? It would appear, as evidenced by the stock's struggles, DDD investors aren't taking chances.

For the three months that ended June, Wall Street expects the Rock Hill, SC.-based company to earn 6 cents per share on revenue of $161.01 million, according to Thomson Reuters. This compares to earnings of 3 cents on revenue of $170.5 million in the year-ago quarter. For the full year, ending in December, 3D Systems is expected to earn 32 cents per share on $662.4 million in revenue.

In the first quarter, the company reported a loss of $17.8 million, or 16 cents per share, which came inline with estimates. But revenue declined 5% year-over-year, missing analysts' forecast. The company is transitioning the business away from a consumer-centric operation to one that focuses more on business customers and in April hired Vyomesh Joshi, who previously led HP's printing business, as its new CEO.

Joshi has already made an impact. Despite the revenue decline, the company's gross margins are up to 50.8%, climbing 170 basis points from a year ago. But how much of the margin improvement is sustainable as the company invests in growing the top line? That answer will determine the stock's next direction.

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