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Why Is Flex (FLEX) Down 14.1% Since Last Earnings Report?
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It has been about a month since the last earnings report for Flex (FLEX - Free Report) . Shares have lost about 14.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Flex 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 catalysts.
Flex’s Q3 Earnings & Revenues Beat Estimates
Flex reported third-quarter fiscal 2020 adjusted earnings of 38 cents per share, which beat the Zacks Consensus Estimate by 15.2%. The figure increased 11.8% year over year.
Revenues declined 6.7% from the year-ago quarter to $6.461 billion but surpassed the Zacks Consensus Estimate by 5.4%.
Sluggish demand from China and soft demand from networking customers impacted the top line.
Segmental Performance in Detail
Communications & Enterprise Compute or CEC (29.1% of revenues) declined approximately 17% from the year-ago quarter to $1.881 billion. Sluggish demand from networking and telecom customers affected second-quarter results.
Consumer Technologies Group or CTG (20.85 of revenues) slumped 25% from the year-ago quarter to $1.346 billion.
Industrial & Emerging Industries or IEI (30.8% of revenues) were $1.989 billion, which increased 20% on a year-over-year basis. The segment witnessed solid demand across diversified markets, including lifestyle, energy, and home, which significantly offset weakness in semiconductor capital equipment vertical.
High Reliability Solutions or HRS (19.3% of revenues) revenues were $1.245 billion, up 3% from the year-ago quarter driven by automotive business, which grew 7% from the year-ago quarter. However, this was offset by a 1% decline in health solutions.
Operating Details
Non-GAAP gross margin expanded 60 basis points (bps) on a year-over-year basis and came in at 7.1% in the reported quarter, primarily attributable to favorable business mix and operational efficiency.
Non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of revenues, expanded 30 bps to 3.1%.
Consequently, non-GAAP operating margin expanded 30 bps on a year-over-year basis to 4%. Stringent cost measures and improving IEI segment performance favored margin expansion.
Segment wise, CEC generated $53 million in adjusted operating profit, translating in adjusted operating margin of 2.8%.
CTG raked in $25 million in adjusted operating profit, exhibiting adjusted operating margin of 1.8%.
IEI reported $124 million in adjusted operating profit, reflecting adjusted operating margin of 6.3%.
HRS generated $82 million in adjusted operating profit, exhibiting adjusted operating margin of 6.6%.
Balance Sheet & Cash Flow
As of Dec 31, 2019, cash & cash equivalents were $1.789 billion, down from $1.816 billion at the end of the previous quarter.
Total debt (long-term plus short term) was $2.8 billion as of Dec 31, down from $2.990 billion at the end of the previous quarter.
Net cash outflow from operations was a negative $50.9 million during the reported quarter compared with negative $992 million in the previous quarter.
Free cash flow came in at $237.8 million compared with $187 million reported in the fourth quarter.
Guidance
For fourth-quarter fiscal 2020, revenues are expected to be in the range of $5.8-$6.2 billion. The company expects IEI revenues to grow in the range of 20% to 25% on a year-over-year basis. CEC revenues are anticipated to decline 5-15%. HRS revenues are anticipated to be flat to up 5%. However, CTG revenues are projected to decline 20-30%.
Adjusted operating income is projected in the range of $220 million to $250 million.
Management guided adjusted earnings in the range of 30 cents to 34 cents per share.
For fiscal 2020, Flex anticipates adjusted earnings in the range of $1.25-$1.29.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -12.25% due to these changes.
VGM Scores
At this time, Flex has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Flex has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Why Is Flex (FLEX) Down 14.1% Since Last Earnings Report?
It has been about a month since the last earnings report for Flex (FLEX - Free Report) . Shares have lost about 14.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Flex 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 catalysts.
Flex’s Q3 Earnings & Revenues Beat Estimates
Flex reported third-quarter fiscal 2020 adjusted earnings of 38 cents per share, which beat the Zacks Consensus Estimate by 15.2%. The figure increased 11.8% year over year.
Revenues declined 6.7% from the year-ago quarter to $6.461 billion but surpassed the Zacks Consensus Estimate by 5.4%.
Sluggish demand from China and soft demand from networking customers impacted the top line.
Segmental Performance in Detail
Communications & Enterprise Compute or CEC (29.1% of revenues) declined approximately 17% from the year-ago quarter to $1.881 billion. Sluggish demand from networking and telecom customers affected second-quarter results.
Consumer Technologies Group or CTG (20.85 of revenues) slumped 25% from the year-ago quarter to $1.346 billion.
Industrial & Emerging Industries or IEI (30.8% of revenues) were $1.989 billion, which increased 20% on a year-over-year basis. The segment witnessed solid demand across diversified markets, including lifestyle, energy, and home, which significantly offset weakness in semiconductor capital equipment vertical.
High Reliability Solutions or HRS (19.3% of revenues) revenues were $1.245 billion, up 3% from the year-ago quarter driven by automotive business, which grew 7% from the year-ago quarter. However, this was offset by a 1% decline in health solutions.
Operating Details
Non-GAAP gross margin expanded 60 basis points (bps) on a year-over-year basis and came in at 7.1% in the reported quarter, primarily attributable to favorable business mix and operational efficiency.
Non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of revenues, expanded 30 bps to 3.1%.
Consequently, non-GAAP operating margin expanded 30 bps on a year-over-year basis to 4%. Stringent cost measures and improving IEI segment performance favored margin expansion.
Segment wise, CEC generated $53 million in adjusted operating profit, translating in adjusted operating margin of 2.8%.
CTG raked in $25 million in adjusted operating profit, exhibiting adjusted operating margin of 1.8%.
IEI reported $124 million in adjusted operating profit, reflecting adjusted operating margin of 6.3%.
HRS generated $82 million in adjusted operating profit, exhibiting adjusted operating margin of 6.6%.
Balance Sheet & Cash Flow
As of Dec 31, 2019, cash & cash equivalents were $1.789 billion, down from $1.816 billion at the end of the previous quarter.
Total debt (long-term plus short term) was $2.8 billion as of Dec 31, down from $2.990 billion at the end of the previous quarter.
Net cash outflow from operations was a negative $50.9 million during the reported quarter compared with negative $992 million in the previous quarter.
Free cash flow came in at $237.8 million compared with $187 million reported in the fourth quarter.
Guidance
For fourth-quarter fiscal 2020, revenues are expected to be in the range of $5.8-$6.2 billion. The company expects IEI revenues to grow in the range of 20% to 25% on a year-over-year basis. CEC revenues are anticipated to decline 5-15%. HRS revenues are anticipated to be flat to up 5%. However, CTG revenues are projected to decline 20-30%.
Adjusted operating income is projected in the range of $220 million to $250 million.
Management guided adjusted earnings in the range of 30 cents to 34 cents per share.
For fiscal 2020, Flex anticipates adjusted earnings in the range of $1.25-$1.29.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -12.25% due to these changes.
VGM Scores
At this time, Flex has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Flex has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.