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Why Is Amkor Technology (AMKR) Down 25.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Amkor Technology (AMKR). Shares have lost about 25.5% 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 Q1 Loss Narrower Than Estimated, Revenues Beat

Amkor Technology reported first-quarter 2019 adjusted loss of 4 cents per share, narrower than the Zacks Consensus Estimate of a loss of 15 cents.

Revenues of $895 million beat the Zacks Consensus Estimate of $880 million and were within the company’s guided range of $840-$920 million. However, revenues decreased 17% sequentially and 12.7% year over year.

The sequential decline in revenues was due to smartphone inventory correction and slowdown in the general market.

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, Amkor is poised to benefit going ahead.

Revenues by Product Lines

The revenue mix in terms of product lines is discussed below.

Advanced Products, which include flip chip scale packages, wafer-level chip scale packages and flip chip ball grid array packages, accounted for approximately 47% of first-quarter revenues. Revenues decreased 25.2% sequentially and 11.3% year over year.

Mainstream Products, which include lead frame packages, substrate-based wire bond packages and MEMS packages, accounted for the remaining 53% of first-quarter revenues. Revenues decreased 8.5% sequentially and 13.8% year over year.

Margins

Per the press release, gross margin of 13.5% was at the high end of the guided range, primarily due to higher sales and favorable product mix. However, gross margins were down 340 basis points (bps) sequentially and 190 bps from the year-ago quarter.

Operating expenses of $107.3 million decreased 11.8% year over year due to decreased employee compensation costs and reduced discretionary spending.

As a percentage of sales, both selling, general & administrative, as well as research & development expenses remained flat with the year-ago quarter.

As a result, operating margin was 1.5%, down 200 bps from the prior-year quarter.

Balance Sheet & Cash Flow

Cash flow from operations was $52.1 million compared with negative $147.6 million in the fourth quarter.

Total cash, cash equivalents and restricted cash were $1.06 billion, up from $684.2 million in fourth-quarter 2018. Net debt at the end of the first quarter was $800 million.

Guidance

For the first quarter, Amkor expects revenues in the range of $850-$930 million. Gross margin is expected within 9-14%. Earnings per share are expected in the range of (25)-(4) cents on a GAAP basis.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 22.22% due to these changes.

VGM Scores

At this time, Amkor Technology has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Amkor Technology has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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