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FLEX Q2 Earnings Call Highlights Axiom Spin-Off and AI Growth

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Flex Ltd. (FLEX - Free Report) emphasized accelerating AI infrastructure demand and progress toward separating its Cloud and Power Infrastructure (CPI) business during its second-quarter fiscal 2027 earnings call. Management highlighted stronger profitability, expanding power capabilities and improved growth expectations.

The planned spin-off, which will establish Axiom as an independent company, dominated discussions. Executives also addressed acquisition contributions, supply constraints, customer concentration and capital requirements as Flex prepares to operate as two businesses.

The company reported adjusted earnings of $1.18 per share, exceeding the Zacks Consensus Estimate of $1.05. Revenues of $8.49 billion surpassed the Zacks Consensus Estimate of $8.17 billion, representing a positive surprise of 3.90%.

Flex Ltd. Price, Consensus and EPS Surprise

Flex Ltd. Price, Consensus and EPS Surprise

Flex Ltd. price-consensus-eps-surprise-chart | Flex Ltd. Quote

FLEX Advances Axiom Spin-Off and Power Strategy

CEO Revathi Advaithi highlighted progress toward the planned Axiom separation, including its Form 10 registration filing and announcement of leadership teams. The transaction is expected to create two companies with distinct operational priorities.

Axiom will concentrate on AI infrastructure, combining compute, cooling and power capabilities. The remaining Flex business will emphasize industrial technology, advanced manufacturing and supply chain solutions.

Advaithi also highlighted the acquisition of EPC Power, which expands Axiom's power conversion portfolio. Management expects the acquisition to contribute positively to adjusted earnings during fiscal 2027.

Flex Raises Fiscal 2027 Financial Outlook

CFO Kevin Krumm raised the company's fiscal 2027 revenue guidance to $34.9 billion-$35.9 billion from $33.7 billion-$35.2 billion, reflecting stronger operating momentum and acquisition contributions.

Adjusted earnings guidance increased to $4.84-$5.16 per share from $4.42-$4.74. Management also raised its adjusted operating margin outlook to 7.6%-7.8% from 7.0%-7.2%.

For the third quarter, Flex expects revenues of $8.87-$9.17 billion and adjusted earnings of $1.19-$1.25 per share. The full-year outlook includes recent acquisitions but excludes the effects of the planned separation.

FLEX Sees Strong Cloud and Power Infrastructure Demand

CPI revenues increased 54% year over year to $2.5 billion, supported by cloud infrastructure and power demand. Adjusted operating margin expanded 240 basis points to 10.7%.

Krumm expects CPI revenues to grow 75%-85% during fiscal 2027, with adjusted operating margins reaching 11.5%-11.7%. Power is expected to outpace cloud and cooling growth.

During the Q&A, a Stifel analyst questioned acquisition contributions to the raised outlook. Krumm clarified that approximately half of the $950 million increase at the guidance midpoint reflected underlying business improvement, with the remainder attributable to EPC Power.

Flex Addresses Supply Constraints and Capital Spending

During the Q&A, Barclays questioned whether manufacturing capacity and component availability could support CPI's expansion.

Advaithi emphasized that manufacturing investments and power infrastructure planning began well ahead of anticipated demand. However, she acknowledged continuing component shortages and indicated that supply limitations were incorporated into management's forecasts.

Krumm projected fiscal 2027 capital expenditures of $1.5 billion-$1.6 billion. During discussions with KeyBanc, he explained that approximately two-thirds of planned investment supports CPI, with substantial spending directed toward future capacity.

FLEX Discusses Margins, Customers and Earnings

During the Q&A, a Fox Advisors analyst questioned Axiom's exposure to major hyperscale customers. Advaithi emphasized expanding relationships across multiple products and programs within those accounts.

Adjusted operating margin reached 7.1%, increasing 110 basis points year over year. Management attributed improvement to productivity gains, stronger business mix and operating leverage.

Flex Focuses on Execution Ahead of Separation

Management maintained an optimistic but execution-focused outlook, emphasizing profitable growth, supply chain management and preparations for the separation.

Advaithi highlighted Axiom's integrated infrastructure strategy, while President and Chief Commercial Officer Michael Hartung emphasized opportunities in health care, communications, energy infrastructure and robotics for the remaining Flex operations.

What Zacks Rank and Style Scores Indicate for FLEX

Flex currently sports a Zacks Rank #1 (Strong Buy), reflecting favorable earnings estimate revisions and stronger near-term performance potential under the Zacks ranking methodology. You can see the complete list of today’s Zacks #1 Rank stocks here.

Its Value Score of B and Momentum Score of B indicate attractive valuation and momentum characteristics. The Growth Score of C reflects comparatively moderate growth characteristics, while the VGM Score of B indicates a favorable combined assessment.

The combination of a Zacks Rank #1 and favorable Style Scores aligns with the stock-selection characteristics emphasized by Zacks. However, the ranking remains subject to changes as analysts revise earnings estimates following the latest quarterly results.

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