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Why Is FormFactor (FORM) Down 11.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for FormFactor (FORM - Free Report) . Shares have lost about 11.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is FormFactor due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

FormFactor Q1 Earnings Miss, Revenues Increase Y/Y

FormFactor reported first-quarter adjusted earnings of 38 cents per share, which missed the Zacks Consensus Estimate by 2.6% but increased 15.2% year over year.

Revenues increased 16.2% year over year to $186.8 million and also surpassed the Zacks Consensus Estimate by 1.7%. However, on a sequential basis, revenues declined 5.2% year over year.

The year-over-year growth in top line was driven by strong demand for Foundry & Logic probe cards and DRAM products.

Quarter Details

Probe card segment revenues were $159 million in the first quarter, down 2.2% sequentially but up 17.9% year over year.

The sequential decrease was driven by lower Foundry & Logic, and slightly lower DRAM revenues, partially offset by an increase in Flash revenues.

Foundry & Logic (accounting for 60.7% of revenues) revenues were $113.4 million, up 7.2% year over year but down 7.6% sequentially. FormFactor’s strength in 5G and advanced packaging drove market share.

Revenues for DRAM products (18.2% of revenues) were $33.9 million, reflecting an increase of 37.2% year over year.

Flash revenues (6.2% of revenues) were $11.6 million, up 169.8% from the year-ago quarter.

Systems revenues were $27.7 million, up 6.5% year over year.

On a non-GAAP basis, gross margin contracted 110 basis points (bps) year over year to 45%. Probe card segment’s gross margin was 44.3% expanding 40 bps sequentially.

Non-GAAP operating expenses increased 8.7% year over year to $46.4 million.

Balance Sheet

As of Mar 27, 2021, cash & marketable securities (including restricted cash) were $269.6 million compared with $257 million as of Dec 26, 2020.

Guidance

FormFactor expects second-quarter 2021 revenues between $180 million and $192 million.

The company expects Foundry & Logic demand to decline sequentially due to specific timing of individual customer design releases. However, FormFactor expects increased DRAM probe card shipments in the second quarter, driven primarily by higher volume of new 16-gigabit DDR4 and DDR5 mobile and server designs.

Product mix is expected to be less favorable in the second quarter. Management also expects higher raw material costs, resulting in non-GAAP gross margin outlook between 41% and 44%.

On a non-GAAP basis, the company projects earnings in the band of 28-36 cents per share. The consensus mark for earnings is pegged at 40 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -16.67% due to these changes.

VGM Scores

Currently, FormFactor has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, FormFactor has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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