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Why Is FormFactor (FORM) Up 12.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for FormFactor (FORM - Free Report) . Shares have added about 12.4% 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 (FORM - Free Report) Beats Earnings & Revenue Estimates in Q2

FormFactor Inc. reported second-quarter adjusted earnings of 27 cents per share, beating the Zacks Consensus Estimate by 3 cents. Also, earnings increased 75% sequentially but decreased 40% year over year.

Revenues decreased 5.9% from the year-ago quarter but were up 14.6% sequentially to $135.5 million, beating the Zacks Consensus Estimate of $134 million. The figure was within the company’s guided range of $130-$138 million.

Strong demand from the company’s largest customer aided second-quarter revenues.

Quarter Details

Probe card segment revenues were $111.6 million in the second quarter, up $16.7 million from the last reported quarter.

Within the probe card segment, Foundry & Logic revenues (46% of the revenues) increased on a sequential basis to $62.1 million. The increase was attributable to higher-than-anticipated revenues 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 second quarter.

Revenues for DRAM products (28% of the revenues) were $38.1 million, up 26%sequentially. Management stated that 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 $11.4 million, up sequentially. Almost half of the flash revenues were from NAND flash applications.

Systems revenues increased sequentially in the second quarter to $23.9 million.

Operating Details

On a non-GAAP basis, gross margin contracted170 basis points(bps) year over year but expanded 260 bps to 45.9%. The sequential increase was primarily due to a favorable product mix.

Non-GAAP operating expenses, including ERP implementation costs, were $39.6 million, up $3 million from the last reported quarter.

Balance Sheet & Cash Flow

As of Jun30, 2018, cash (comprising cash and cash equivalent as well as marketable securities) was $142.9 million compared with $142.1 million in the last reported quarter.

Cash from operations was $20.7 million compared with $9.3 million in the first quarter. Free cash flow was $16.8 million, up from $6.3 million in the last reported quarter.

Guidance

FormFactor expects third-quarter 2018 revenues between $130 million and $138 million.

On a non-GAAP basis, the company projects gross margin within 42-45% and earnings in the band 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. The consensus estimate has shifted -18.68% due to these changes.

VGM Scores

At this time, FormFactor has a nice Growth Score of B, 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 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.

Zacks style scores indicate that the company's stock is suitable for value and growth investors.

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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