Flex Ltd FLEX has struck a harmonious chord with investors by reporting adjusted earnings per share of 51 cents for the first quarter of fiscal 2025, surpassing the Zacks Consensus Estimate by a striking 24.4%. This melodic performance eclipsed the prior-year quarter’s earnings of 47 cents per share.
Although revenues experienced a dissonant note, declining 8% year over year to $6.3 billion, they managed to surpass the consensus estimate by 7%. The underlying cause of this discord was a deceleration in the Agility and Reliability Solutions business segments.
A Harmonious Tune for Investors
Shareholders danced to the beat of success, with share prices rising 6.86% to close at $31.76 on Jul 24 following the announcement. Over the past year, Flex Ltd’s stock has gained a respectable 12.3%, outshining the sub-industry’s rise of 12.1%.
Image Source: Zacks Investment Research
Harmonizing Segments
The Flex Reliability Solutions Group, comprised of Health Solutions, Automotive, and Industrial businesses, experienced a 10% decline in revenues year over year, amounting to $2.9 billion. This downturn was attributed to weak macro trends in core industrial areas, offset by growth in automotive, cloud, data center power, and healthcare devices.
In the Flex Agility Solutions Group, which includes Communications & Enterprise Compute (CEC) and Lifestyle and Consumer Devices businesses, revenues dipped by 5.5% to $3.4 billion from the previous year’s figure of $3.6 billion. Despite this setback, positive trends were observed in the cloud sector while facing softness in enterprise IT and non-cloud-related networks.
Operational Harmony
On the operational front, non-GAAP gross margin saw an uplifting 50 basis points (bps) increase year over year to reach 7.8% in the reported quarter.
Non-GAAP operating income stood at $306 million, up from the previous year’s $293 million, while the non-GAAP operating margin expanded by 50 bps to 4.8%.
Additionally, non-GAAP selling, general, and administrative expenses totaled $189 million, marking a 9% year-over-year decrease.
The Flex Reliability Solutions Group’s adjusted operating margin held steady at 5%, mirroring the previous year’s level, while the Flex Agility Solutions Group saw an impressive 120 bps improvement to 5.3%.
Financial Harmony and Future Notes
As of Jun 30, 2024, cash & cash equivalents stood at $2.24 billion, with long-term debt (net of current portion) reaching $2.6 billion, compared to $2.3 billion and $3.3 billion, respectively, from a year ago.
In the first quarter of fiscal 2025, Flex generated $340 million in cash flow from operating activities and an adjusted free cash flow of $232 million.
Melodic Guidance
Looking ahead, Flex foresees revenues between $6.2 billion and $6.8 billion for the second quarter of fiscal 2025.
The company anticipates adjusted earnings falling in the range of 52-60 cents per share for the same period, excluding specific charges. Additionally, adjusted operating income is projected to be between $310 million and $350 million.
For fiscal 2025, revenue projections range from $25.4 billion to $26.4 billion. Adjusted earnings per share are expected to be in the $2.30-$2.50 range, excluding certain expenses.
Management anticipates continued growth in key end-markets such as cloud, power, auto, and medical devices, even as they navigate challenges such as rising global tax rates and a dynamic macro backdrop.
A Symphony of Rankings
With a Zacks Rank #2 (Buy), Flex continues to hit the right notes with analysts and investors alike.
Harmony in Performance
In comparison, BlackBerry and Badger Meter, Inc, with tickers BB and BMI respectively, displayed contrasting performances. BlackBerry reported a narrower-than-expected loss, while Badger Meter exceeded earnings estimates.
SAP SE, symbol SAP, also showcased robust performance, with significant earnings growth in the second quarter of 2024.
Each of these companies’ stock movements over the past year have reflected their distinctive musical compositions, with BlackBerry declining, Badger Meter surging, and SAP steadily climbing.
Amidst the diverse melodies played across the financial stage, Flex’s performance stands out as a bittersweet symphony of success and challenge, resonating harmoniously with the ebbs and flows of the market.
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