A month has gone by since the last earnings report for FormFactor, Inc. (FORM - Free Report) . Shares have added about 14.3% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is FORM due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
FormFactor Q1 Earnings Beat Estimates, Revenues Misses
FormFactor reported first-quarter adjusted earnings of 17 cents per share, which exceeded the Zacks Consensus Estimate by a penny. Also, earnings increased 29.2% year over year.
Revenues decreased 8.5% from the year-ago quarter to $118.3 million, lower than the Zacks Consensus Estimate of $121 million. The figure was within the company’s guidance of $112-$120 million.
The weak demand from the company’s largest customer and the delay in 10 nm production probe card demand impacted first quarter revenues.
However, management is optimistic that probe card shipments to this customer will begin to ramp up in the second quarter of 2018. FormFactor expects record shipments to this customer in the second half of 2018.
The company's shares have lost 10.2% in the past 12 months, underperforming the industry’s gain of 4.4%.
Foundry & Logic revenues (49% of revenues) decreased 15% on a sequential basis at $58.4 million. The decline was attributable to the anticipated lower revenue from the company’s largest customer.
During the quarter, FormFactor witnessed sequential increase in shipments of a new design to a foundry, which utilizes probe cards and advanced packaging applications at leading edge nodes. Moreover, probe card for RF applications increased in the first quarter.
Revenues for DRAM products (26% of revenues) were $30.3 million, down 5%sequentially. Management stated that despite weak results, DRAM demand environment was robust in the quarter. Technology node transitions and a strong datacenter demand environment continued to positively impact probe card demand.
Flash revenues were $6.2 million, down sequentially. Almost half of the flash revenues were from NAND flash applications.
Systems revenues declined sequentially in the first quarter. The sequential decline in this segment was due to a decrease in station sales, offset by record sales of thermal subsystems.
On a non-GAAP basis, gross margin expanded 70 bps year over year to 43.3%. The increase was primarily due to a favorable product mix and lower warranty costs, partially offset by a negative impact of a stronger euro.
Non-GAAP operating expenses, including ERP implementation costs, were $36.6 million, up $0.6 million from the prior quarter. The increase was due to higher R&D investments and ERP integration and implementation costs, partially offset by lower performance-based compensation.
Balance Sheet & Cash Flow
As of Mar 31, 2018, cash (comprising cash and cash equivalent as well as marketable securities) was $142.1 million compared with $141.4 million as of Dec 30, 2017.
Cash from operations was $9.3 million compared with $26.5 million in the fourth quarter. Free cash flow was $6.3 million, up from $23.5 million in the fourth quarter.
FormFactor expects second-quarter 2018 revenues between $130 million and $138 million.
On a non-GAAP basis, the company projects gross margin of 42-45% and earnings of 20-26 cents per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower.
At this time, FORM has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. 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.
Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for value and to a lesser degree momentum.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions has been net zero. It's no surprise FORM has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.