Why Shares of Kulicke & Soffa Industries Inc. Slumped Today

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What: Shares of Kulicke & Soffa Industries , a manufacturer of semiconductor equipment and tools, slumped on Tuesday after the company reported mixed second-quarter earnings. At 1 p.m. Tuesday, the stock was down about 10%.

So what: Kulicke & Soffa reported quarterly revenue of $145.2 million, up 27.2% year-over-year and about $5 million higher than analyst estimates. This revenue beat, however, wasn't enough to overcome an earnings miss. The company reported EPS of $0.10, down 16.7% year-over-year and two cents short of what analysts were expecting.

Gross margin fell 330 basis points year-over-year, declining to 47.2%. Operating margin also fell, down 220 basis points year-over-year to 6.8%. Operating margin has been declining for the past few years, peaking in fiscal 2012 at 22.7%.

CEO Bruno Guilmart explained the results: "We performed well this quarter, generating revenue slightly above the high-end of our guided range. Our financial results, during a quarter of significant ongoing investments in product development, are supported by our large install base and overall exposure to higher-growth opportunities within end markets such as memory, mobility, connectivity devices and sensors."

Now what: The semiconductor equipment business is a volatile one, making it difficult to predict earnings very far into the future. Revenue actually grew faster than operating expenses during the quarter, but a lower gross margin combined with a higher tax rate compared to the second quarter of 2014 led both operating income and net income to decline year-over-year.

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The stock was punished severely for what appears to be a decent quarter. Weak guidance may be a reason why the stock declined, with the company guiding for third-quarter revenue between $160 million and $170 million. This would represent a decline compared the third quarter of 2014, when the company reported $181 million of revenue.

Kulicke & Soffa operates in a tough industry, and quarterly results are almost guaranteed to be extremely volatile. Investors considering the stock should look at the long-term performance and the long-term prospects of the company instead of the results of a single quarter.

The article Why Shares of Kulicke & Soffa Industries Inc. Slumped Today originally appeared on Fool.com.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.