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FormFactor (FORM) Down 14.4% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for FormFactor (FORM - Free Report) . Shares have lost about 14.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is FormFactor 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.

FormFactor Beats Earnings & Revenue Estimates in Q1

FormFactor Inc. reported first-quarter adjusted earnings of 20 cents per share, beating the Zacks Consensus Estimate by a couple of cents. However, the figure decreased 35.5% sequentially but increased 17.6% year over year.

Revenues increased 11.8% from the year-ago quarter but decreased 6.2% sequentially to $132.2 million. The top line beat the Zacks Consensus Estimate of $130 million and was at the high end of the company’s guided range of $127-$135 million.

Quarter Details

Probe card segment revenues were $108.1 million in the first quarter, down 6.9% from the last reported quarter.

Within the probe card segment, Foundry & Logic sales (accounting for 54% of its total revenues) decreased 6.6% on a sequential basis to $71.6 million.

Revenues for DRAM products (22% of revenues) were $28.9 million, down 2.4% sequentially.

Flash revenues were $7.6 million, down on a sequential basis. Almost $4.4 million of the flash revenues were from NAND flash applications.

Systems revenues in the first quarter were $24.1 million, down 2.5% sequentially.

Operating Details

On a non-GAAP basis, gross margin expanded 80 basis points (bps) year over year and flat sequentially to 44.1%. The year over year increase was primarily due to a strong product mix in engineering systems segment.

Non-GAAP operating expenses were $38.1 million in the first quarter, up $0.9 million from the last reported quarter. The increase was due to higher R&D investments partially offset by lower SG&A expenses.

Balance Sheet & Cash Flow

At the end of the first quarter, cash and cash equivalents as well as marketable securities were $159.8 million compared with $149 million in the last reported quarter.

Cash flow from operations was $20.6 million in the first quarter. Free cash flow was $14.9 million, up from $15.8 million in the last reported quarter.

2Q Guidance

FormFactor expects second-quarter 2019 revenues between $131 million and $139 million. 

On a non-GAAP basis, the company projects gross margin within 41-44% and earnings in the band of 15-21 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 -12.31% 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. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 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.

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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