3D Systems Earnings: Is Hewlett-Packard the True Threat?

3D Systems (DDD 1.97%) will release its quarterly report on Tuesday, and investors have thus far ridden the 3-D printing industry's wave of success higher. Shareholders are counting on continued growth in 3D Systems earnings, which it has managed to do thus far even over competition from Stratasys (SSYS 0.72%) and ExOne (XONE). But now that Hewlett-Packard (HPQ 0.86%) could be entering the industry, will 3D Systems be able to sustain rapid-enough growth to justify its valuation?

3D Systems has been one of the prime movers in the rising 3-D printing industry, with hopes of transforming the manufacturing industry with its additive printing technology that allows users to create three-dimensional objects to exact specifications. With Stratasys and ExOne lagging behind in terms of revenue, 3D Systems has been the big player in what has been a select group of companies testing the 3-D printing waters. But with Hewlett-Packard CEO Meg Whitman saying she sees the company entering the industry by mid-2014, 3D Systems could have a whole new challenge on its hands. Let's take an early look at what's been happening with 3D Systems over the past quarter and what we're likely to see in its report.

Source: 3D Systems.

Stats on 3D Systems

Source: Yahoo! Finance.

Can 3D Systems fight off Hewlett-Packard?
In recent months, analysts have trimmed their near-term views on 3D Systems earnings, cutting $0.02 per share from their third-quarter estimates and a nickel per share off their full-year projections for the current year. The stock, though, has kept climbing, rising almost 25% since late July.

3D Systems didn't start the quarter on good footing, reporting second-quarter results that disappointed growth-hungry investors. Although revenue climbed 45%, earnings fell well short of expectations, with earnings-per-share in particular taking a hit because of a rise in outstanding share counts following a secondary stock offering earlier this year. Higher expenses also raised concerns about future profitability despite impressive top-line growth.

Source: 3D Systems.

Hewlett-Packard made waves earlier this week when Whitman told a Bangkok IT-industry forum audience that HP plans to get into the 3-D printing industry by the middle of next year. With initial plans to focus on the service providers that offer 3-D printing to professional commercial clients, though, HP doesn't appear to be aiming at the home-consumer market. That plays to 3D Systems' advantage against Stratasys and ExOne, both of which arguably have more to lose from commercial-printing competition.

Yet the bigger threat could come from Stratasys after its recent acquisition of MakerBot. The move pits 3D Systems' Cube printer against the MakerBot line, with Stratasys' backing helping add heft to what had been a much smaller threat when MakerBot was an independent company.

3D Systems continues to make strategic moves to boost its prospects. In August, the company bought TeamPlatform, a builder of collaboration tools that it believes should help improve collaboration and productivity among users of its printers. Then last month, 3D Systems bought The Sugar Lab, a tiny company that has looked to use 3-D printing technology to produce edible products using sugar. The move opens the door to a huge potential market of broader-based food printing, with initial niches like high-end wedding cakes eventually leading to other types of foods.

In the 3D Systems earnings report, be sure to look beyond the headline numbers to see if troubling expense trends continue to weigh on earnings. It's almost a given that revenue will keep soaring, but taking care of bottom-line issues will grow more important as 3D Systems matures, especially if Hewlett-Packard makes a bigger push into 3-D printing than expected.

Click here to add 3D Systems to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.