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Factors Setting the Tone for Celestica (CLS) in Q2 Earnings

Zacks Equity Research

Celestica Inc. CLS is slated to report second-quarter 2019 results on Jul 24.

Notably, the company beat the Zacks Consensus Estimate in one of the trailing four quarters, with an average negative surprise of 11.4%.

Past Quarter Performance

In first-quarter 2019, total revenues came in at $1.43 billion, missing the Zacks Consensus Estimate by approximately 4.3%. The figure was also down 4.4% from the year-ago quarter.

The company reported non-IFRS adjusted earnings of 12 cents per share, which declined 50% from the year-ago figure. Moreover, the bottom line missed the Zacks Consensus Estimate by 29.4%.

Guidance & Estimates for Q2

Celestica estimates non-IFRS adjusted second-quarter earnings to come between 9 and 15 cents. Revenues (IFRS basis) are envisioned to lie in the range of $1.4-$1.5 billion.

The Zacks Consensus Estimate for second-quarter earnings is pegged at 12 cents per share, unchanged for the last 30 days. This indicates a decline of about 58.6% from year-ago earnings. The consensus for revenues stands at $1.45 billion, suggesting a deterioration of 14.7% year over year.

Let's see how things are shaping up for this announcement.

Factors at Play

Toronto, Canada-based Celestica offers engineering-based electronics manufacturing services and related technology solutions to OEMs (or original equipment manufacturers). The company primarily caters to computer and communications end markets.

Celestica is striving to capitalize on new end markets to expand business opportunities, which bodes well for the top line. Notably, Advanced Technology Solutions (ATS) segment comprises aerospace and defense (A&D), HealthTech, smart energy, industrial and capital equipment end markets.

Particularly, latest deal wins and synergies from Atrenne acquisition remain key catalysts for A&D vertical. This is expected to aid ATS segment performance in the to-be-reported quarter.

In fact, in first-quarter fiscal 2019 results, ATS revenues (representing 40% of total revenues) improved 9% year over year to $578.2 million.

Celestica, Inc. Price and EPS Surprise

 

Celestica, Inc. Price and EPS Surprise

Celestica, Inc. price-eps-surprise | Celestica, Inc. Quote

Further, expanding smart energy clientele and customer wins on account of Impakt buyout favor prospects in the to-be-reported quarter.

Backed by robust demand for cloud-computing technologies, Celestica is witnessing evolving demand from cloud-based service providers, which is likely to aid upcoming quarterly results.

Solid adoption of the company’s Joint Design and Manufacturing (JDM) solutions is expected to generate incremental revenues in the second quarter. Notably, Celestica offers customized JDM solutions to enable its clientele to deliver solutions to the market faster and cost-effectively.

However, softness in demand from traditional OEMs owing to macroeconomic headwinds is likely to negatively impact CCS revenues in the upcoming earnings release.

Markedly, CCS segment comprising Communications and Enterprise end markets cater to the company’s telecommunications, servers, enterprise communications, and storage businesses. In the past-quarter, CCS segment revenues (representing 60% of total revenues) declined 12% year over year to $854.9 million.

Furthermore, restructuring initiatives are likely to limit overall margin expansion in the second quarter.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Celestica has a Zacks Rank #2 and an Earnings ESP of 0.00%, which makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks you may consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Helix Energy Solutions Group, Inc. HLX has an Earnings ESP of +7.61% and a Zacks Rank #1. The company is slated to report second-quarter 2019 earnings on Jul 24. You can see the complete list of today’s Zacks #1 Rank stocks here.

Warrior Met Coal, Inc. HCC has an Earnings ESP of +8.66% and a Zacks Rank #2. The company is scheduled to report second-quarter 2019 earnings on Jul 31.

CGI Group, Inc. GIB has an Earnings ESP of +1.27% and a Zacks Rank #2. The company is set to report third-quarter 2019 earnings on Jul 31.

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