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Flex (FLEX) Q3 Earnings & Revenues Top Estimates, Up Y/Y

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Zacks Equity Research
·6 min read
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Flex Ltd. FLEX reported third-quarter fiscal 2021 adjusted earnings of 49 cents per share that beat the Zacks Consensus Estimate by 32.4%. Moreover, the figure increased 28.9% year over year.

Revenues increased 4% year over year to $6.72 billion and beat the consensus mark by 7.4%. The top line benefited from primarily strength seen 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.

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

The company also announced that it was exploring alternatives for its NEXTracker business. The alternatives for NEXTracker include complete or partial separation by means of transactions like floating an initial public offering (IPO), sale and spin off.

Segment Details

Beginning fiscal first quarter, 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 6% year over year to $3.834 billion.

Within the segment, Lifestyle division reported 10% revenue growth driven by increased demand for high-end audio and appliance end market.

CEC unit revenues improved in low single digits on a year-over-year basis. The segment’s top line benefitted from higher cloud and critical infrastructure spend.

Consumer devices’ topline improved in high single digits on a year-over-year basis due to seasonality in consumer spending.

Flex Reliability Solutions Group comprises Health Solutions, Automotive and Industrial businesses. Revenues increased 2% year over year to $2.886 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 in high single digits in the fiscal third 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. The segment’s top line increased in double digits year over year.

However, revenues from Industrial unit were down in high single digits primarily owing to a customer-specific headwind.

Operating Details

Non-GAAP gross margin expanded 50 basis points (bps) on a year-over-year basis and came in at 7.6% in the reported quarter.

Non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of revenues, declined 10 bps year over year to 3%.

Non-GAAP operating margin expanded 60 bps on a year-over-year basis to 4.6% benefiting from cost-containment efforts.

Flex Agility Solutions Group adjusted operating margin was 4%. Flex Reliability Solutions Group adjusted operating margin was 6.2%

Balance Sheet & Cash Flow

As of Dec 31, 2020, cash & cash equivalents were $2.61 billion, up from $2.36 billion as of Sep 25, 2020.

Long-term debt (including current portion) was $3.81 billion as of Dec 31, up from $3.8 billion as of Sep 25.

Net cash provided by operating activities was $348 million during the reported quarter compared with $51 million used in operations in the year-ago quarter and $265 million of net cash generated in the previous quarter.

Adjusted free cash flow was $289 million in the reported quarter compared with free cash flow of $238 million in the year-ago quarter and $326 million of free cash flow in the previous quarter.

Guidance

For fourth-quarter fiscal 2021, Flex expects revenues between $5.6 billion and $6 billion. The Zacks Consensus Estimate for revenues is currently pegged at $5.62 billion, which indicates an improvement of 2.5% from the figure reported in the year-ago quarter.

Adjusted operating income is expected between $225 million and $265 million.

Adjusted earnings are expected in the range of 32-38 cents per share. The consensus mark for earnings is currently pegged at 30 cents per share, which suggests improvement of 7.1% from the figure reported in the year-ago quarter.

For the fiscal fourth quarter, Flex Agility solutions is expected to report year-over-year revenue growth of low to high single digits. 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 is anticipated to be up in high single digits to low teens on a year-over-year basis. CEC is projected to be up in low to mid-single digits year over year in the fiscal fourth quarter.

Consumer Devices is expected to be up low single digits in the fiscal fourth quarter on a year-over-year basis.

Flex Reliability Solutions’ is projected to report year over year revenue growth of low to high single digits based on a recovering automotive sector along continued strength in industrial end-market such as core industrial and power products. Both the divisions are anticipated to report revenue growth in low to mid-single digits on a year over years basis.

However, Health Solutions’ division is likely to witness growth in low double digits to mid-teens on a year over year basis in the fiscal fourth quarter. Higher demand for critical care products like ventilators, while demand for products for elective procedures is yet to pick up pace due to second wave of coronavirus wave.

Zacks Rank & Stocks to Consider

Currently, Flex carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Qorvo QRVO, Synaptics Incorporated SYNA and Microchip MCHP. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Qorvo is set to report its quarterly results on Feb 3, while Synaptics and Microchip are scheduled to report their quarterly results on Feb 4.

Long-term earnings growth rate of Qorvo, Synaptics and Microchip is pegged at 15.8%, 10% and 14.9%, respectively.

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