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Flex (FLEX) Beats Q2 Earnings Estimates, Misses on Revenues

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Flex Ltd. FLEX reported second-quarter fiscal 2022 adjusted earnings of 48 cents per share, beating the Zacks Consensus Estimate by 20%. The reported figure also jumped 33.3% year over year.

Revenues increased 4.1% year over year to $6.23 billion but lagged the consensus mark by 2%. The top line benefited from continued strength in the Agility Solutions and Reliability Solutions segments.

Segment Details

The Flex Agility Solutions Group comprises the Communications & Enterprise Compute or CEC, Lifestyle and Consumer Devices businesses. Revenues were up 3.6% year over year to $3.44 billion. Though demand remained healthy across all of its verticals, the industry-wide component supply constraint negatively impacted the segment’s revenue growth.

Lifestyle benefited from the continued robust demand for high-end durable goods and new business ramps. CEC’s top line benefited from higher cloud and critical infrastructure spend, as well as accelerated 5G deployment.

The Flex Reliability Solutions Group comprises the Health Solutions, Automotive and Industrial businesses. Revenues went up 4.7% year over year to $2.79 billion.

Flex Ltd. Price, Consensus and EPS Surprise

Flex Ltd. Price, Consensus and EPS Surprise
Flex Ltd. Price, Consensus and EPS Surprise

Flex Ltd. price-consensus-eps-surprise-chart | Flex Ltd. Quote

Operating Details

The non-GAAP gross margin expanded 60 basis points (bps) on a year-over-year basis to 7.7% in the reported quarter.

The non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of revenues, flared up 10 bps year over year to 3.1%.

The non-GAAP operating margin advanced 50 bps on a year-over-year basis to 4.6% on higher gross margin.

The Flex Agility Solutions Group’s adjusted operating margin was 4.4%, up 170 bps year over year. The Flex Reliability Solutions Group’s adjusted operating margin came in at 5.4%, having shrunk 130 bps.

Balance Sheet & Cash Flow

As of Oct1, 2021, cash & cash equivalents were $2.46 billion, up from $2.69 billion as of Jun 30, 2021.

Total debt (including current portion) was $3.79 billion as of Oct 1, up from $3.78 billion as of Jun 30, 2021.

During the first half of fiscal 2022, the company generated cash flow from operating activities of $514 million and free cash flow of $309 million.

Guidance

Considering the prevalent supply-chain and logistics disruptions, Flex lowered its revenue outlook for fiscal 2022. For fiscal 2022, Flex now expects revenues between $24.8 billion and $25.8 billion, down from the previous guided range of $25.5-$26.5 billion.

However, it continues to expect adjusted earnings in the range of $1.70-$1.85 per share.

For third-quarter fiscal 2022, Flex expects revenues between $6.1 billion and $6.5 billion.

The adjusted operating income is projected between $250 million and $290 million. The adjusted earnings are expected in the 38-44 cents per share band.

Zacks Rank and Stocks to Consider

Flex currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the broader technology sector include Applied Materials AMAT, Advanced Micro Devices AMD and CACI International CACI, all carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Applied Materials, Advanced Micro Devices and CACI is currently pegged at 19.4%, 44.6% and 5.5%, respectively.


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