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Flex (FLEX) Q4 Earnings Miss, Revenues Surpass Estimates

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Flex Ltd. (FLEX - Free Report) reported fourth-quarter fiscal 2018 non-GAAP earnings of 28 cents per share, which missed the Zacks Consensus Estimate by a couple of cents. Moreover, the figure declined 3.4% from the year-ago quarter.

Revenues increased 9.3% from the year-ago quarter to $6.41 billion, coming at the higher end of guided range and also beat the Zacks Consensus Estimate of $6.23 billion.

The year-over-year revenue growth can be attributed to robust performance across most segments. The top-line benefited from new business wins driven by the Sketch-to-Scale initiative as well as continued development of the long-term strategic partnership with Nike (NKE - Free Report) . However, increasing expenses focused on supporting company’s products, keep the bottom line under pressure.

Quarter Details

Communications & Enterprise Compute (“CEC”) revenues declined 5.4% from the year-ago quarter to almost $1.88 billion. Legacy-end markets impacted results. However, expansion in its data center capabilities holds promise.

Consumer Technologies Group (“CTG”) revenues improved 7.2% from the year-ago quarter to $1.65 billion.

Revenues from the IEI segment were $1.64 billion, which surged 26.3% on a year-over-year basis. The segment benefited from a robust demand across its diversified markets as well as the beginning of several Sketch-to-Scale programs.

HRS revenues were up a robust 19.4% from the year-ago quarter to $1.25 billion.

Operating Details

Adjusted gross margin contracted 40 basis points (“bps”) on a year-over-year basis to 6.7% in the quarter.

Adjusted selling, general & administrative (“SG&A”) expenses were $229 million, exceeding the year-over-year figure by almost $15 million. However, as a percentage of net sales, SG&A expenses declined 10 bps to 3.6% primarily due to increasing design and engineering cost. Moreover, higher level of investment and under-absorbed overhead costs increased expenses.

Non-GAAP operating margin declined roughly 40 bps on a year-over-year basis to 3.1%.

Flex Ltd. Price, Consensus and EPS Surprise

Flex Ltd. Price, Consensus and EPS Surprise | Flex Ltd. Quote

Segment wise, CEC generated $45 million in adjusted operating profit and recorded adjusted operating margin of 2.4%, marginally missing the guided range of 2.5-3.5%.

CTG raked in $24 million in adjusted operating profit, resulting in an adjusted operating margin of 1.5%, a tad lower than the guided range of 2-4%.

IEI reported $68 million in adjusted operating profit and 4.1% adjusted operating margin, within the targeted range of 4-6%.

HRS reported $97 million in adjusted operating profit, resulting in adjusted operating margin of 7.8%, near the higher end of guided range of 6-9%.

Balance Sheet & Cash Flows

As of Mar 31, 2018, cash & cash equivalents were $1.47 billion compared with $1.29 billion as of Dec 31, 2017. Total debt was $2.94 billion unchanged from Dec 31, 2017.

Flex generated net cash from operations of $323 million compared with $150 million in the previous quarter. Free cash flow of $195 million was reported compared with $32.8 million in the previous quarter.

The company bought back shares worth $180 million shares in fiscal 2018, consequently fulfilling the commitment to return more than 50% of annual free cash flow to shareholders.

Guidance

For first-quarter fiscal 2019, revenues are expected to be in the range of $6.3-$6.7 billion. The company expects CTG, IEI and HRS to grow 7%, 26% and 19%, respectively, on a year-over-year basis. However, CEC is anticipated to decline by 5% year over year.

Adjusted operating income is projected in the range of $170-$200 million. Moreover, adjusted earnings are expected between 22 cents and 26 cents per share.

The company anticipates interest and other expenses in the range of $35-$40 million in the first quarter of 2018,

Zacks Rank & Stocks to Consider

Flex carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the broader technology sector are Mellanox Technologies and Micron Technology (MU - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Mellanox and Micron is projected to be 15% and 10%, respectively.

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