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Why Is FormFactor (FORM) Down 12.5% Since Last Earnings Report?

It has been about a month since the last earnings report for FormFactor (FORM). Shares have lost about 12.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is 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 Q4 Earnings & Revenues Beat Estimates

FormFactor Inc. reported fourth-quarter adjusted earnings of 41 cents per share, beating the Zacks Consensus Estimate of 32 cents. The figure increased 86.4% sequentially and 32.3% year over year.

Moreover, revenues increased 26.8% from the year-ago quarter and 27% sequentially to $178.63 million. The figure was at the high end of the company’s guided range of $170-$178 million. Also, the top line outpaced the Zacks Consensus Estimate by 2.7%.

The top-line growth was driven by strong demand for both Foundry & Logic probe cards. Customer node transitions and new design releases also aided revenue growth.

Management continues to expect strong demand for Foundry & Logic probe cards in the near term. It expects a sequential reduction in DRAM probe card demand in first-quarter 2020 but long-term DRAM probe card demand is likely to remain solid.

Quarter Details

Probe card segment revenues were $153.2 million in the fourth quarter, up 31.5% from the third quarter.

Within the probe card segment, Foundry & Logic sales (accounting for 59% of its total revenues) increased 53.7% on a sequential basis to $105.1 million.

Revenues for DRAM products (24% of revenues) were $42.9 million, up $3.5 million from the third quarter.

Flash revenues were $5.2 million, down on a sequential basis.

Systems revenues in the fourth quarter were $25.5 million, up 5.4% sequentially.

Operating Details

On a non-GAAP basis, gross margin expanded 160 basis points (bps) year over year and 220 bps sequentially to 45.7%. The increase was due to higher volume and lower manufacturing variances.

Non-GAAP operating expenses were $43.8 million in the fourth quarter, up from $37.2 million in the prior-year period. The increase was due to higher R&D investments.

Balance Sheet & Cash Flow

At the end of the fourth quarter, cash and cash equivalents, as well as marketable securities were $220.87 million compared with $199.97 million in the third quarter.

Cash flow from operations was $37.7 million in the fourth quarter. Free cash flow was $31.6 million, up from $25.6 million in the third quarter.

Guidance

FormFactor expects first-quarter 2020 revenues between $160MILLION and $172 million. 

On a non-GAAP basis, the company projects gross margin within 43-46% and earnings in the band of 27-35 cents per share. 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 20.31% due to these changes.

VGM Scores

At this time, FormFactor has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise FormFactor has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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FormFactor, Inc. (FORM): Free Stock Analysis Report
 
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