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Why Kulicke and Soffa Industries Stock Dropped After Earnings Today

By Rich Smith - May 6, 2021 at 4:37PM

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This isn't how "earnings beats" are supposed to work.

What happened

Shares of Singaporean semiconductor equipment manufacturer Kulicke and Soffa Industries (KLIC 2.60%) -- a company that makes the machines that assemble the semiconductors that go into other machines -- reported a huge earnings beat Monday morning. Then its stock dropped, falling 12.2% through 3:30 p.m. EDT.

Where analysts saw Kulicke earning just $1.14 per share on sales of $332 million, Kulicke instead earned $1.26 per share (pro forma) on sales of more than $340 million.  

Cartoon characters confused by stock chart arrow falling and crashing into floor.

Image source: Getty Images.

So what

This is not how "earnings beats" usually work. Usually, when a company exceeds expectations, investors reward it by buying the stock, but that's not how things worked out today. Why not?

You can hardly fault Kulicke for this strange reaction. The company did its work admirably in the second quarter of 2021, growing sales 126% year over year and operating income more than seven-fold. Net profit margins more than doubled to 21%, and net profits increased six-fold. (The generally accepted accounting principles (GAAP) earnings number was $1.13 per share, not far behind pro forma profit.)  

Now what

Kulicke even gave good guidance. On top of the good earnings report for Q2, management is promising Q3 sales of anywhere from $380 million to $420 million. (Wall Street was only looking for $315 million.) And management expects to earn between $1.21 and $1.49 per share on those sales -- all numbers well ahead of Wall Street's forecast of $0.99 per share.  

Long story short: Kulicke beat earnings in Q2 and promised to do it again in Q3. The fact that investors aren't pleased with this report is quite simply a mystery to me.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Kulicke and Soffa Industries, Inc. Stock Quote
Kulicke and Soffa Industries, Inc.
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