Flex Ltd. FLEX reported first-quarter fiscal 2021 adjusted earnings of 23 cents per share that beat the Zacks Consensus Estimate by 27.8%. However, the figure decreased 14.8% year over year.
Revenues declined 16.6% year over year to $5.15 billion but beat the consensus mark by 2.9%. The year-over-year decline was primarily due to automotive shutdowns and slow ramp of projects.
Most of Flex’s North American and European auto-production sites remained closed in the reported quarter.
Segment Details
Beginning fiscal first quarter, the company started reporting in two segments – Flex Agility Solutions Group and Flex Reliability Solutions Group.
Flex Agility Solutions Group comprises Health Solutions, Automotive and Industrial businesses. Revenues declined 1% year over year to $2.24 billion.
Flex Ltd. Price, Consensus and EPS Surprise
Flex Ltd. price-consensus-eps-surprise-chart | Flex Ltd. Quote
Markedly, the company has produced more than 20 million masks to date at seven locations across the globe. Moreover, all of Flex’s production sites around the globe are up and running and the company witnessed significant improvement in supply chain, which was massively disrupted by the coronavirus outbreak.
Flex’s Health Solutions business benefited from strong demand for ventilators, testing equipment, oxygen concentrators, fusion pumps, patient monitors and ICU beds. The company also saw continued strength in industrial end-market such as power products.
Flex Reliability Solutions Group comprises Communications & Enterprise Compute or CEC, Lifestyle and Consumer Devices businesses. Revenues plunged 25% year over year to $2.91 billion.
CEC benefited from strong demand for networking and compute equipment to support the increased workload from work-and-learn from home. However, sluggish Lifestyle and Consumer Devices businesses negatively impacted the segment’s growth in the quarter under review.
Operating Details
Non-GAAP gross margin contracted 40 basis points (bps) on a year-over-year basis and came in at 6.2% in the reported quarter.
Non-GAAP selling, general & administrative (SG&A) expenses as a percentage of revenues declined 20 bps year over year to 3%.
Non-GAAP operating margin contracted 20 bps on a year-over-year basis to 3.2%.
Flex Agility Solutions Group operating margin was 5.1%. Flex Reliability Solutions Group operating margin was 2.5%
Balance Sheet & Cash Flow
As of Jun 30, 2020, cash & cash equivalents were $1.94 billion, up from $1.92 billion as of Mar 31, 2020.
Total debt was $3.56 billion as of Jun 30, up from $2.84 billion as of Mar 31.
Net cash used by operating activities was $629.4 million during the reported quarter compared with $656.9 million used in operations in the year-ago quarter and $50.9 million used in operations in the previous quarter.
Free cash outflow was $74 million in the reported quarter compared with free cash flow of $114 million in the year-ago quarter and $134 million in the previous quarter.
Guidance
For second quarter of fiscal 2021, Flex expects revenues between $5.4 billion and $5.7 billion. The Zacks Consensus Estimate for revenues is currently pegged at $5.23 billion, indicating decline of 14.1% from the figure reported in the year-ago quarter.
Adjusted operating income is expected between $180 million and $220 million.
Adjusted earnings are expected in the range of 25-31 cents per share. The consensus mark for earnings is currently pegged at 24 cents per share, suggesting a decline of 22.6% from the figure reported in the year-ago quarter.
Flex plans to phase out certain non-core functions and streamline organizational structure. The company intends to focus on key markets where it has competitive leverage and domain expertise. Charges related to these reorganizations are expected to be $100 million for the rest of fiscal 2021. Flex expects to save $60 million in fiscal 2022 related to these activities.
Zacks Rank & Stocks to Consider
Currently, Flex has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector are Dropbox DBX, Everbridge EVBG and Asure Software ASUR. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Both Dropbox and Everbridge are scheduled to report earnings on Aug 6. Asure Software is set to release quarterly results on Aug 10.
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