It has been about a month since the last earnings report for Amkor Technology (AMKR - Free Report) . Shares have lost about 2.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Amkor Technology 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.
Amkor Beats Earnings and Revenue Estimates in Q4
Amkor Technology, Inc. reported fourth-quarter 2018 adjusted earnings of 12 cents per share, surpassing the Zacks Consensus Estimate of 8 cents.
Revenues of $1.08 billion beat the Zacks Consensus Estimate by 1.96% and were within the company’s guided range of $1.02-$1.10 billion. However, revenues decreased 5.5% sequentially and 6% year over year.
The top line was driven by strength in nearly all its end markets. Revenues were up 5% in communications and 2% in automotive and industrial, offset by a customer specific inventory correction in Japan. Computing was up 3% but consumer was down 3%.
The company has been making efforts to channelize its resources in important growth areas like MEMS and sensors business, which focus 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 automotive business growth. 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 attractive value proposition for automotive customers, the company is poised to benefit going ahead.
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 52% of fourth-quarter revenues. Revenues decreased 3.1% sequentially and 3.1% year over year.
Mainstream Products include lead frame packages, substrate-based wire bond packages and MEMS packages. It accounted for the remaining 48% of fourth-quarter revenues. Revenues decreased 8% sequentially and 9% year over year.
Per the press release, gross margin of 16.9%, up 200 basis points (bps),was above the high end of guidance, primarily due to higher sales and favorable product mix. However, gross margins were down 60 bps sequentially and 260 bps from the year-ago quarter.
Operating expenses of $107 million decreased 7.2% year over year. As a percentage of sales, selling, general and administrative expenses decreased, while research and development expenses marked an increase.
As a result, reported operating margin was 7%, down 250 bps from the prior-year quarter.
Balance Sheet & Cash Flow
Free cash flow was $120 million compared with negative $100 million in the third quarter.
Total cash, cash equivalents and restricted cash were $684.2 million, up from $382.3 million in the last reported quarter. Long-term debt in the quarter was $1.2 billion.
For the fourth quarter, Amkor expects revenues in the range of $840-$920 million, down sequentially. The decrease reflects the inventory correction, currently underway in the smartphone market. Gross margin is expected within 9-13%. Earnings per share are expected in the range of (27)-(7) 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 -475% due to these changes.
At this time, Amkor Technology has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
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.