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Tickers in this Article: SSYS, DDD, HPQ
Stratasys Inc. (SSYS) reported third quarter 2012 earnings per share of 40 cents, outpacing the Zacks Consensus Estimate of 19 cents. Revenue

Stratasys recorded total revenue of $49.7 million in the third quarter, up 24.5% from $40.0 million in the year-ago quarter. During the quarter, the company shipped a total of 911 units, which is a 52.0% increase from 600 units shipped during year-ago period.

Third quarter sales were driven by the 21% sales increase of Fortus 3D production system. Although the primary reply for customers purchasing the company's Fortus systems was decent, but a larger share of the demand growth was influenced by new Direct Digital Manufacturing applications.

As far as the segments are concerned, Products revenue came in at $41.3 million, up 27.0% from $32.5 million reported in the year-ago quarter. Services revenue jumped 12.9% to $8.40 million from $7.44 million in the year-ago quarter.

Operating Results

Gross profit stood at $28.0 million (56.2% of the total revenue) in the quarter, up 29.8% from $21.5 million (53.9% of the total revenue) in the year-ago quarter. The gross margin improvement was due to efficient cost reduction measures.

Operating income in the quarter was $9.10 million versus $7.85 million in the third quarter of 2011. However, operating expense increased 37.6% year over year, primarily due to higher R&D and SG&A expenses. Operating margin of 18.3% dropped from 34.3% in the year-ago quarter. The company is offering lower-margin products, which has resulted in the reduction of margin.

The company reported net income of $5.18 million or 24 cents per share in the third quarter compared with $5.86 million or 27 cents per share in the prior-year quarter. Non-GAAP net income was $8.7 million or 40 cents per share in the reported quarter.

Balance Sheet

The company exited the quarter with cash and cash equivalents of $51.8 million, slightly up from $51.2 million in the previous quarter. The company does not have any long-term debt.

Guidance

For fiscal 2012, the company expects revenue to be in the range of $194 million to $199 million, versus previous guidance of $193 million to $198 million, whereas the non-GAAP earnings guidance is expected to be in the range of $1.37 to $1.40 per share, versus previous guidance of $1.31 to $1.38 per share. Whereas, the GAAP earnings guidance is expected to be in the range of $0.77 to $0.88 per share, versus previous GAAP guidance of $0.83 to $0.98 per share.

Conclusion

The third quarter results were encouraging with EPS substantially exceeding the Zacks Consensus Estimate and revenues improving on a year-over-year basis. This apart, the revenue growth in the Fortus 3D production systems contributed to the overall revenue.

Moreover the company is expected to benefit from the discontinuity of 3D printers by Hewlett-Packard Company (HPQ), effective at the end of 2012. Stratasys does not expect the contract termination to have a material impact on the business fundamentals of the company. Again, the company is also witnessing an upward trend in the direct digital marketing demand.

On the other hand, the company is a bit apprehensive about the company's high-cost business model and stiff competition from big and small players like 3D Systems Corp. (DDD). Nonetheless, the acquisition of Objet is expected to improve the growth of 3D systems business.

The company has a Zacks #1 Rank, which implies a short-term Strong Buy rating on the stock.

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