Flextronics Beats on Q4 Earnings, Revs - Analyst Blog

Flextronics International Ltd. FLEX reported fourth quarter fiscal 2014 earnings of 22 cents per share, which beat the Zacks Consensus Estimate by 4 cents. Earnings were also up 83.3% from the year-ago quarter.

Quarter Details

Revenues increased 27.0% from the year-ago quarter to $6.7 billion, beating the Zacks Consensus Estimate of $6.1 billion. Revenues slivered past management's guided range of $5.9 billion to $6.3 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.

The Integrated Network solutions segment revenue declined $36.0 million from the year-ago quarter to $2.4 billion in the reported quarter. High velocity solutions segment revenues increased to $2.4 billion in the reported quarter.

Revenues from the Industrial and Emerging Industries increased 16.0% year over year to $1.03 billion. High Reliability Solutions revenues improved 9.0% from the year-ago quarter to $843.0 million.

In the reported quarter, Flextronics launched Elementum, which in turn would enable the company to bring the latest in big data, cloud and mobile technologies to deliver real-time supply chain information to customers.

Moreover, during the quarter the company continued making investments in product innovation centers, Lab IX, and in improving its design and engineering capabilities. Also, with an intention to improve its mechanical and automation capability, it acquired RIWISA.

Gross margins increased 170 bps from the year-ago quarter to 5.4% 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 the expansion in the Industrial & Emerging Industries IEI and High Reliability Solutions HRS business groups.

Selling, general & administrative (SG&A) expense as a percentage of revenues declined 110 basis points (bps) from the year-ago quarter to 3.2%. As a result, operating margin increased 70 bps to 2.7% in the fourth quarter.

Net income as a percentage of revenues was 2.0% compared with 1.5% in the year-ago quarter. Adjusted net income per share was 22 cents, which increased 83.3% from 12 cents reported in the year-ago quarter.

Flextronics exited the quarter with cash and cash equivalents of $1.59 billion compared with $1.13 billion at the end of the previous quarter. Cash from operations was $98.0 million in the reported quarter.

Guidance

For the first quarter of fiscal 2014, revenues are expected to be in the range of $6.0 billion to $6.5 billion while adjusted earnings are likely to be in the range of 20 cents to 25 cents per share.  

Adjusted operating income is expected to be in a range of $150.0 million to $180.0 million or $165.0 million at the midpoint.
 
Our Take

Flextronics reported decent fourth 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 #4 (Sell).