Perceptron Tumbles After Q2 Results, Now What?

| About: Perceptron, Inc. (PRCP)
This article is now exclusive for PRO subscribers.

On Wednesday, shares of Perceptron Inc. (NASDAQ:PRCP) tumbled as the company reported disappointing quarterly results. In a previous report, I had discussed how Perceptron was benefiting from investors' enthusiasm for 3D printing technology even though the company has little to do with the technology.

I had also raised concerns about Perceptron's weakening financial performance. The company's industrial business unit sales fell from $19.2 million in the third quarter ended March 31, 2012 to $12.1 million in the first quarter ended September 30, 2012. The trend continued in Perceptron's second quarter as the company's revenue fell sharply on a year-over-year basis.

On Tuesday, Perceptron reported net sales of $13.2 million for the second quarter ended December 31, 2012, down from $16.2 million reported for the same period in the previous year. The company's sales figure for the second quarter of fiscal 2012 excludes sales from the Commercial Products Business Unit (CBU). The company had divested almost all of the assets of its CBU unit in August last year.

As I had noted, declining revenue is never a good sign for any company, let alone a company seen as a growth story.

The company's revenue fell due to decline in Americas and Asia. Bookings for the quarter also fell. PRCP's bookings for the quarter were $12.1 million, down 27% from the second quarter of fiscal 2012. Bookings in Americas fell by $7.4 million in the quarter. The company's backlog for the quarter was $29.7 million, down 11.6% from the same period in the previous year.

Declining revenue and bookings is not the only concern for Perceptron. The company's gross margin also contracted significantly in the second quarter of fiscal 2013. PRCP reported gross margin of 39.3% for the second quarter of fiscal 2013, down from 47.2% reported for the same period in the previous year.

While revenue fell 19% in the quarter, Perceptron's selling, general and administrative (SG&A) expenses rose approximately 1.4% in the second quarter of fiscal 2013.

Net income for the second quarter was just $184,000, or $0.02 per share, significantly below the $1.7 million, or $0.20 per share reported for the same period in the previous year.

Declining sales and rising costs is a major concern for Perceptron. The company does expect stronger sales in the second half of fiscal 2013, compared to the first half. However, if margin continues to decline at the same pace and costs continue to rise, it will be difficult for the company to remain profitable.

Perceptron CEO Harry Rittenour expects resumption of sales growth in fiscal 2014 as the company's customers continue to launch enticing new products and its Helix technology becomes a more significant component of its product portfolio.

As I said before, Perceptron shares had rallied in January due to inventors' enthusiasm for 3D printing technology. However, as I noted in the previous report, PRCP is not a 3D printing company. The company does provide some 3D scanning solutions, but it is small part of its business.

Since the previous report, Perceptron shares have tumbled more than 21%. The downward slide is likely to continue after Perceptron's disappointing quarterly results. The company expects things to improve in the second half of its fiscal 2013; however, even then I don't see Perceptron as a growth story.

(Click to enlarge)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.