It has been about a month since the last earnings report for Flex (FLEX). Shares have added about 5.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Flex due for a pullback? 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 Q3 Earnings Beat Estimates, Revenues Fall Y/Y
Flex reported third-quarter fiscal 2022 adjusted earnings of 50 cents per share, beating the Zacks Consensus Estimate by 21.95%. The bottom line also grew 2% year over year.
Revenues decreased 1.5% year over year to $6.62 billion but surpassed the consensus mark by 4.9%. Nonetheless, the company benefited from strength across the Agility Solutions and Reliability Solutions segments, along with a solid end-market focus on the back of emerging opportunities.
Segment Details
The Flex Agility Solutions Group comprises the Communications & Enterprise Compute or CEC, Lifestyle and Consumer Devices businesses. Revenues were down 6.6% year over year to $3.58 billion.
Lifestyle benefited from the continued robust demand for high-end durable goods, new product ramps and customer wins. CEC’s top line gained from higher demand for cloud and optical solutions as well as accelerated 5G deployment. However, the consumer devices unit faced headwinds from planned project completion.
The Flex Reliability Solutions Group comprises the Health Solutions, Automotive and Industrial businesses. Revenues went up 5.3% year over year to $3.04 billion. Though demand remained healthy across automotive and industrial verticals, continued supply chain constraints stemming from the pandemic posed a major woe.
Operating Details
The non-GAAP gross margin contracted 10 basis points (bps) on a year-over-year basis to 7.5% in the reported quarter.
The non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of revenues, remained unchanged year over year at 3%.
The non-GAAP operating margin also fell 10 bps to 4.5% on lower gross margin.
The Flex Agility Solutions Group’s adjusted operating margin was 4.6%, up 60 bps year over year. The Flex Reliability Solutions Group’s adjusted operating margin was 5.1%, having shrunk 110 bps.
Balance Sheet & Cash Flow
As of Dec 31, 2021, cash & cash equivalents were $2.57 billion, up from $2.46 billion as of Oct 1, 2021.
Total debt (including current portion) was $4.45 billion as of Dec 31, up from $3.79 billion as of Oct 1, 2021.
During the first nine months of fiscal 2022, the company generated cash flow from operating activities of $664 million and adjusted free cash flow of $340 million.
Guidance
Despite the prevalent supply-chain and logistics disruptions, Flex raised its revenue outlook for fiscal 2022. For fiscal 2022, Flex expects revenues between $25.4 billion and $25.8 billion, up from the prior guided range of $24.8-$25.8 billion. The updated outlook reflects 6% year-over-year growth at the midpoint.
It expects adjusted earnings in the range of $1.85-$1.90 per share compared with the previous outlook of $1.70-$1.85.
For fourth-quarter fiscal 2022, Flex expects revenues between $6.2 billion and $6.6 billion.
The adjusted operating income is projected between $265 million and $305 million. Adjusted earnings are expected in the 41-46 cents per share band.
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 -5.26% due to these changes.
VGM Scores
At this time, Flex has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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 has been net zero. Notably, Flex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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