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FormFactor (FORM) Up 3.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for FormFactor (FORM - Free Report) . Shares have added about 3.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is FormFactor due for a pullback? 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 catalysts.

FormFactor Q2 Earnings Beat, Revenues Increase Y/Y

FormFactor reported second-quarter adjusted earnings of 36 cents per share, which surpassed the Zacks Consensus Estimate by 9.1%. Also, it increased 9.09% year over year.

Revenues increased 19.2% year over year to $188.1 million and surpassed the Zacks Consensus Estimate of $185.3 million. On a sequential basis, revenues grew 0.8%.

The year-over-year growth in the top line was driven by strong demand for DRAM products and growth in Systems segment sales.

Quarter Details

Probe card segment revenues were $154 million for the second quarter, down 3.1% sequentially but up 14.9% year over year.

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

Foundry & Logic (accounting for 55% of revenues) revenues were $103.7 million, down 5% year over year and 8.6% sequentially.

Revenues for DRAM products (22.4% of revenues) were $42.1 million, reflecting an increase of 120.4% year over year and 24.2% sequentially.

Flash revenues (4.2% of revenues) were $7.9 million, up 46.3% from the year-ago period but down 31.9% from the first quarter.

Systems revenues were $34.4 million for the reported quarter, up 24% sequentially and 43% year over year.

The sequential increase was due to higher sales of optical metrology and thermal systems, driven by advanced packaging and automotive applications.

On a non-GAAP basis, gross margin contracted 140 basis points (bps) year over year to 44.4%. Also, Probe card segment’s gross margin was 43.3%, contracting 10 bps sequentially.

Non-GAAP gross margin exceeded the guided range of 41-44% due to favorable product mix, better yields on a new DRAM design, increased precious metals recovery, and improved utilization and absorption.

Non-GAAP operating expenses increased 17.8% year over year to $48.4 million.

Balance Sheet & Cash Flow

As of Jun 26, 2021, cash & marketable securities (including restricted cash) were $258.1 million compared with $270.5 million on Mar 27, 2021.

Further, the company generated $33.8 million of cash from operations in the reported quarter, up from $32.4 million in the previous quarter.

Capital expenditure was $17.9 million, up from $13.5 million in the first quarter.

Further, free cash flow was $16.2 million for the second quarter, down from $19.2 million in the first quarter.

Guidance

FormFactor expects third-quarter 2021 revenues between $182 million and $194 million.

The company expects continued strong demand, with sequentially higher Systems demand, partially offset by a moderate decline in Probe cards.

Further, management expects non-GAAP gross margin between 43% and 46%.

On a non-GAAP basis, it projects earnings in the band of 31-39 cents per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, FormFactor has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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. It's no surprise FormFactor has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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