A month has gone by since the last earnings report for Amkor Technology (AMKR - Free Report) . Shares have added about 1.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Amkor Technology 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.
Amkor Technology Q2 Earnings & Revenues Beat
Amkor Technology, Inc. reported second-quarter 2018 adjusted earnings of 14 cents per share, surpassing the Zacks Consensus Estimate by 9 cents.
However, revenues of $1.066 billion exceeded the Zacks Consensus Estimate of $1.030 billion and were within the company’s guided range of $990 million to $1.07 billion.
The company has been making efforts to channelize its resources in important growth areas like MEMS and sensors business, which focuses on mobile and automotive applications. In this regard, Amkor recently added a third MEMS and sensor production line in Korea to attract more business.
The company remains optimistic about growth in the automotive business. Per market forecast, the automotive market will grow in high single digits in the coming years. The growth is expected to be driven by increasing electronic content. Given its attractive value proposition for automotive customers, the company is poised to benefit going ahead.
Revenues of $1.066 billion increased 4% sequentially and 5.8% year over year. The increase was driven by strength in nearly all its end markets, particularly communications. The communications segment benefited from iOS ecosystem customers’ incremental demand.
Also, strong demand for advanced system-in-package (SiP), which was up 14% sequentially and 38% year over year, aided the revenue growth.
Revenues by Product Lines
The revenue mix in terms of product lines is discussed below.
Advanced Products include flip chip scale packages, wafer-level chip scale packages and flip chip ball grid array packages. It accounted for approximately 47% of second-quarter revenues. Revenues increased 4.2% sequentially and 11.5% year over year.
Mainstream Products include lead frame packages, substrate-based wire bond packages and MEMS packages. It accounted for the remaining53% of second-quarter revenues. Revenues increased 3.8% sequentially and 1.2% year over year.
Per the press release, gross margin was 15.9%, up 50 basis points (bps) sequentially but down 160 bps from the year-ago quarter. The sequential increase was backed by higher revenues.
Operating expenses of $115.8 million increased 3.3% year over year. As a percentage of sales, selling, general and administrative expenses increased, while research and development expenses decreased.
As a result, reported operating margin was 5.1%, up 1200 bps from the prior-year quarter.
Balance Sheet & Cash Flow
During the quarter under review, cash flow from operations was $59 million compared with $147.6 million in the last reported quarter. Capex was $669 million compared with $230.6 million in the first quarter. Free cash flow was negative $100 million compared with negative $83 million in the first quarter of 2018.
Total cash, cash equivalents and restricted cash were $382.3 million in the second quarter, down from $497.2 million in the last reported quarter. Long-term debt in the quarter was $1.2 billion.
For the third quarter, Amkor expects revenues in the range of $1.10-$1.18 billion, up 7% sequentially. Gross margin is expected within 15-17%. Earnings per share are expected in the range of 12-23 cents on a GAAP basis.
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 -30.77% due to these changes.
Currently, Amkor Technology has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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 more suitable for value investors than those looking for growth and momentum.
Estimates have been broadly trending downward for the stock and the magnitude of this revision indicates a downward shift. Notably, Amkor Technology has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.