Flextronics International Ltd. (FLEX) reported second-quarter fiscal 2015 earnings of 25 cents per share, which beat the Zacks Consensus Estimate by a couple of cents. Earnings were also up 17.6% from the year-ago quarter.
Quarter Details
Revenues increased 1.8% from the year-ago quarter to $6.5 billion, beating the Zacks Consensus Estimate of $6.4 billion. Revenues were above the mid-point of management’s guided range of $6.2 billion to $6.6 billion.
Year-over-year revenue growth was driven by growth in two of the largest business groups, including double-digit growth in three of the four business groups (IEI, HRS and HVS business groups), which helped to offset the revenue decline in other businesses.
Revenues from the Industrial and Emerging Industries (IEI) increased 17% year over year to $1.1 billion. High Reliability Solutions (HRS) revenues improved 11% from the year-ago quarter to $875 million. Consumer Technology Group reported revenues of $2.1 billion in the reported quarter, well ahead of management’s expectations.
Network Solutions Group was the only segment to have undergone a decline on a year over year basis, with its revenues falling 7% from the year-ago quarter to $2.4 billion in the reported quarter.
Gross margin increased 10 bps from the year-ago quarter to 5.8% in the reported quarter. The year-over-year increase can be mainly attributed to a healthier level of mix in business as a result of expansion in Industrial & Emerging Industries and High Reliability Solutions business groups.
Selling, general & administrative (SG&A) expense as a percentage of revenues declined 30 basis points (bps) from the year-ago quarter to 3.1%. As a result, operating margin increased 30 bps to 2.6% in the second quarter.
Net income was $146.6 million or 25 cents per share compared with $125.8 million or 21 cents per share reported in the year-ago quarter. Net margin expanded 20 bps on a year-over-year basis in the reported quarter.
Flextronics exited the quarter with cash and cash equivalents of $1.52 billion compared with $1.59 billion at the end of the previous quarter. Cash from operations was $387 million while free cash flow was $322 million in the second quarter. During the quarter, the company repurchased shares worth $101 million.
Guidance
For the third quarter of fiscal 2015, revenues are expected to be in the range of $6.4 billion to $6.8 billion.
Adjusted earnings are expected to be in the range of 24 cents to 28 cents per share while the Zacks Consensus Estimate for the same is pegged at 23 cents per share.
The company expects its net interest and other expense to be $20 million in the third quarter. The company expects its capital investment for fiscal 2015 to range between $300 million to $350 million.
Flextronics expects strong performance from the IEI and HRS businesses with combined growth anticipated to be approximately 10% for fiscal 2015.
The company expects its gross margin to improve from the current levels as it will continue to drive further operational efficiencies and yield improvements over the coming quarters.
Our Take
Flextronics reported decent second quarter results, with both earnings and revenue beating the Zacks Consensus Estimate. Flextronics has undertaken a number of new initiatives to gain a competitive edge, which include divestiture of non-core assets and deployment of new technologies.
In this regard, we also believe that strategic acquisitions and strong new bookings will also drive top-line growth over the long term. However, macroeconomic concerns and weak end-market demands are major headwinds in the near term.
Moreover, the portfolio realignment is also expected to hurt Flextronics’ top-line growth in the near term. Further, increasing competition from Jabil Circuit Inc. (JBL), Celestical Inc. (CLS) and Plexus Corp. (PLXS) remains a concern, going forward.
Currently Flextronics has a Zacks Rank #3 (Hold).
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