It has been about a month since the last earnings report for Flex (FLEX). Shares have added about 2.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Flex due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Flex Q4 Earnings & Revenues Beat Estimates
Flex Ltd reported fourth-quarter fiscal 2021 adjusted earnings of 49 cents per share that beat the Zacks Consensus Estimate by 36.1%. Moreover, the figure increased 75% year over year.
Revenues increased 14% year over year to $6.27 billion and beat the consensus mark by 7.7%. The top line benefited from continued strength in the Agility Solutions and Reliability Solutions segments.
After a massive disruption due to coronavirus outbreak, automotive sector, globally, is now witnessing strong recovery that bodes well for Flex in the long term. Flex is expanding its business in the automotive sector especially in the field of autonomous cars and electrification.
For fiscal 2021, Flex reported revenues of $24.1 billion, down 0.4% year over year. Adjusted earnings of $1.57 per share increased 27.6% year over year.
Beginning fiscal first quarter 2021, the company started reporting in two segments — Flex Agility Solutions Group and Flex Reliability Solutions Group.
Flex Agility Solutions Group comprises Communications & Enterprise Compute or CEC, Lifestyle and Consumer Devices businesses. Revenues increased 17% year over year to $3.429 billion.
Within the segment, Lifestyle division reported 22% revenue growth driven by new business ramps as well as higher demand for goods in audio floor care and appliance end markets.
CEC unit revenues improved 11% on a year-over-year basis. The segment’s top line benefitted from higher cloud and critical infrastructure spend as well as accelerated 5G deployment.
Consumer devices’ top line increased 24% on a year-over-year basis due to easy year-over-year comparisons.
Flex Reliability Solutions Group comprises Health Solutions, Automotive and Industrial businesses. Revenues increased 11.1% year over year to $2.837 billion.
In automotive, ongoing recovery in the sector, globally, was the driving factor behind increases in the segment’s revenues in the quarter under review. On a year-over-year basis, automotive unit reported top-line growth of 20% in the fiscal fourth quarter.
Also, Flex’s Health Solutions business continued to benefit from higher demand for critical care equipment like ventilators, fusion pumps, patient monitors and ICU beds along with improving demand in areas such as elective procedures. The segment’s top line increased 25% year over year.
Revenues from Industrial unit were up low single digits primarily due to improvement in core industries.
Non-GAAP gross margin expanded 100 basis points (bps) on a year-over-year basis and came in at 8.1% in the reported quarter.
Non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of revenues, declined 30 bps year over year to 3.1%.
Non-GAAP operating margin expanded 110 bps on a year-over-year basis to 4.9%, benefiting from cost-containment efforts.
Flex Agility Solutions Group adjusted operating margin was 4%. Flex Reliability Solutions Group adjusted operating margin was 6.7%
Balance Sheet & Cash Flow
As of Mar 31, 2021, cash & cash equivalents were $2.64 billion, up from $2.61 billion as of Dec 31, 2020.
Long-term debt (including current portion) was $3.78 billion as of Dec 31, up from $3.81 billion as of Dec 31.
Net cash provided by operating activities was $161 million during the reported quarter compared with $166 million reported in the year-ago quarter and $348 million of net cash generated in the previous quarter.
Adjusted free cash flow was $135 million in the reported quarter compared with free cash flow of $134 million in the year-ago quarter and $289 million of free cash flow in the previous quarter.
For first-quarter fiscal 2022, Flex expects revenues between $5.9 billion and $6.3 billion.
Adjusted operating income is expected between $240 million and $280 million.
Adjusted earnings are expected in the range of 34-40 cents per share.
For the fiscal first quarter, Flex Agility solutions are expected to report year-over-year revenue growth of low-to-high teens. The upside is likely to be driven by continued strength in Lifestyle and CEC units along with ongoing recovery in the emerging markets to benefit Consumer Devices’ revenues.
Lifestyle segment revenues are anticipated to be up 30-40% on a year-over-year basis. CEC is projected to be up in low to mid-single digits year over year in the fiscal first quarter.
Consumer Devices’ revenues are expected to rise 25-35% in the fiscal first quarter on a year-over-year basis.
Flex Reliability Solutions is projected to report year-over-year revenue growth of 15-25% based on a recovering automotive sector along with continued strength in industrial end-market such as core industrial and power products. Automotive division revenues are expected to nearly double on a year-over-year basis due to recovery in the automotive sector. Industrial segment top line is expected to be up mid- to high-single digits driven by solid improvements and easy year over year comparisons.
Health Solutions’ division revenues are likely to witness flat to up mid-single digits year-over-year growth.
For fiscal 2022, Flex expects revenues between $25 billion and $26 billion.
Adjusted operating income margin is expected between 4.4% and 4.6%.
Adjusted earnings are expected in the range of $1.60-$1.75 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 36.36% due to these changes.
Currently, Flex has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Flex has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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