We are entering a new age of manufacturing, with 3D printing technology changing the way that we produce everything from prosthetic limbs to houses. Designers can now build and tweak blueprints digitally and then implement them instantaneously. This allows manufacturers to waste less time waiting for molds to be produced before creating prototypes and production models.
Two big players
3D Systems Corporation (NYSE:DDD) and Stratasys, Ltd. (NASDAQ:SSYS) are two of the largest 3D printing companies today. Companies and consumers are now able to download single objects to print on demand. As more companies turn to 3D printing, more computer technicians, engineers, and designers will be required to service this industry.
Fundamentals
3D Systems Corporation (NYSE:DDD) has been introducing different printer models, different materials, and powerful designer software packages. These products helped the company’s revenue to grow 44.5% to a record $120.8 million with an overall organic growth rate of 30.1% in the second quarter, year over year.
Earnings didn’t necessarily follow the top line growth, as earnings slipped from $0.19 per share to $0.16 per share this past quarter. Research and development expenses have ballooned, though in a growth industry this is to be expected. Since 3D Systems Corporation (NYSE:DDD) and Stratasys, Ltd. (NASDAQ:SSYS) have been increasing R&D so rapidly in this new industry, investors should be expecting profits to follow several quarters from now.
Stratasys, Ltd. (NASDAQ:SSYS) saw organic revenue growth of 30% year over year, and expects revenue to keep growing at a rate above 20% for at least the next five years. The company earned $0.43 this quarter, a 36% increase from the previous quarter. The company also had a gross profit margin of 59% this past quarter as it capitalized on larger corporate customers.
Stratasys, Ltd. (NASDAQ:SSYS) recently completed mergers with MakerBot and Object to help it compete in both the consumer printer market and 3D software market. Both Stratasys and 3D Systems Corporation (NYSE:DDD) are now competing head-to-head in the corporate, consumer and software development market segments.
Looking forward, we will see both of these companies adopting the “printer & ink” model to sell both printers and printing materials. The companies will see profit margins of approximately 40% gross profit margin on their printers, while seeing closer to 70% gross profit margin on their print materials divisions.
Building out a network
It is predicted that factories will move to richer countries and 3D printing will become more dispersed and customized than traditional manufacturing. It was also just announced that United Parcel Service, Inc. (NYSE:UPS)’s UPS Store will become the first national retailer to offer 3D printing services to entrepreneurs, architects and startups.
Stratasys, Ltd. (NASDAQ:SSYS) systems will be installed at six test locations, beginning in San Diego. This will be a win-win situation for the companies. It makes sense logistically for Stratasys, and United Parcel Service, Inc. (NYSE:UPS) will now be able to print out items on demand and ship them anywhere in the country. This could be a boon for the company, and we could see a new version of “The Cola Wars” if FedEx and 3D Systems Corporation (NYSE:DDD) team up.
United Parcel Service, Inc. (NYSE:UPS) derives its revenue from shipping items, and what better way to drive volume than having items built at your shipping facility. UPS saw its revenue increase 1.2% as volumes increased 5% year over year in the most recent quarter. The shipping environment remained competitive and consumers were more price conscious, resulting in lower margin shipping options being used. UPS expects to see earnings per share growth of 4%-13% for the second half of the year that includes the holiday season.
United Parcel Service, Inc. (NYSE:UPS) generated $2.5 billion in free cash flow in that same time frame after capital expenditures of $990 million. The company paid $1.1 billion to support a 2.8% dividend, and repurchased 21.8 million shares for $1.8 billion.
Looking forward, the company sees growth in its healthcare customers offsetting a slow down with its technology customers. Even if revenue were to remain constant, shareholders are receiving nearly 7% every year in dividends and buybacks from this shipping giant. With the added benefit of being a first mover in the consumer 3D printing space by teaming up with Stratasys, Ltd. (NASDAQ:SSYS), Brown is looking like it is a pretty safe investment.
Foolish bottom line
As the industry progresses we will see more companies adopting the 3D printing models, allowing fixed costs, and CapEx to fall in many major manufacturing sectors. 3D Systems Corporation (NYSE:DDD) and Stratasys, Ltd. (NASDAQ:SSYS) are set to dominate the industry as of right now, barring any large mergers or acquisitions. The sun is rising on this small industry, but the stocks are expensive right now, proceed with caution.
Wes Patoka owns shares of Stratasys and United Parcel Service. The Motley Fool recommends 3D Systems, Stratasys, and United Parcel Service. The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: short January 2014 $36 calls on 3D Systems and short January 2014 $20 puts on 3D Systems.
The article What Industry Will Tomorrow’s Jobs Come From? originally appeared on Fool.com.
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