Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Flex Ltd (FLEX, Financial) reported Q1 revenue of $6.3 billion, slightly above prior expectations.
- Adjusted operating margin improved to 4.8%, and adjusted EPS was $0.51.
- Strong progress in large program ramps across cloud, power, and automotive businesses, expected to generate continued tailwinds.
- Free cash flow was a robust $232 million, with a full-year target of $800 million plus.
- Flex Ltd (FLEX) repurchased approximately 15 million shares, totaling about $460 million in buybacks.
Negative Points
- Revenue was down year-over-year, despite a 2% sequential increase.
- Global vehicle unit expectations are softening, potentially impacting the automotive segment.
- Continued headwinds in the industrial sector, particularly in the renewable space.
- Softness in the consumer business, though it has stabilized.
- Telecom sector facing headwinds, impacting overall performance.
Q & A Highlights
Q: Can you provide a brief rundown on the segments of your business that are still facing headwinds, particularly in industrial and consumer sectors? Where do you think you are in terms of cycling past the trough in revenues for these segments?
A: We are seeing continued headwinds in the industrial sector, particularly in the renewable space, though the industry indicates it has bottomed out. On the consumer side, we have seen softness but are quite stabilized in terms of revenue. Additionally, we see some headwinds in the telecom space. However, strong tailwinds in our cloud, data center solutions, automotive, and health device sectors offset these challenges.
Q: Are you contemplating any portfolio rationalization to focus on higher-margin businesses within the portfolio?
A: Our business leaders are focused on improving the mix within our six business units by targeting better end markets and winning customers who are ready to pay for value. We are doubling down on investments in high-growth and better profitability areas like data centers and automotive. Portfolio rationalization for us means running the six business units better and changing the mix within them.
Q: Can you talk about the strength you are seeing in the cloud segment and the ramping of new programs?
A: Our data center business portfolio is around $3 billion, with $1 billion in power and $2 billion in the CEC space. We grew more than 60% in this space this quarter and expect a 20% growth rate trajectory longer-term. We have many new programs coming on and feel confident about hitting our growth targets.
Q: Are there any specific areas where you see additional opportunities to add services and value-added products on top of the traditional EMS relationship?
A: Value-added services have big opportunities across all our businesses, including health solutions, industrial, and consumer sectors. This includes logistics, remanufacturing, refurbishment, and end-to-end value propositions for our customers. We are putting significant organizational horsepower behind growing and accelerating these services.
Q: How are you handling the geopolitical environment and potential new tariffs?
A: We are proactively planning with our customers to create resilient supply chains. We have become adept at executing strategies to mitigate the impact of new tariffs, which creates opportunities for us to help our customers. This has become a common conversation in every C-suite we engage with.
Q: Can you provide more details on the new program ramps and their impact on fiscal 2025 revenue growth?
A: We anticipated several ramps in the first quarter, and overall spending was slightly less than expected, resulting in better-than-expected Q1 performance. We will continue to ramp through the year, particularly in the cloud segment, which will contribute to sequential margin expansion.
Q: Given the strong Q1 performance, why are you maintaining the full-year guidance unchanged?
A: It is early in the year, and we believe it is prudent to maintain our full-year guidance despite the strong Q1 performance. We feel good about the full year and expect continued acceleration in Q2.
Q: How are you addressing factory improvements and productivity goals?
A: We see significant opportunities for factory productivity improvements through new technology transformations, such as automation and AI manufacturing. Our teams are focused on continuous productivity gains, which contribute to our margin improvement alongside mix changes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
