Why Is Flex (FLEX) Up 12.4% Since Last Earnings Report?
It has been about a month since the last earnings report for Flex (FLEX). Shares have added about 12.4% 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 its most recent earnings report in order to get a better handle on the important drivers.
FLEX Q3 Earnings Surpass Estimates
Flex reported third-quarter fiscal 2024 adjusted earnings per share (EPS) of 71 cents, which beat the Zacks Consensus Estimate by 14.5%. The bottom line grew 14.5% year over year.
Revenues decreased 8% year over year to $7.1 billion. However, it beat the consensus mark by 5.5%. The downtick was caused by weakness across the Agility and Reliability Solutions segments.
Revenues for Core Flex (which represents Flex’s total revenues excluding Flex’s 51.47% economic interest in Nextracker) was $6.4 billion, declining 11.5% year over year.
Segment Details
The Flex Reliability Solutions Group comprises Health Solutions, Automotive and Industrial businesses. Revenues decreased 8% year over year to $3 billion. The downtick was caused by macro-driven weakness in commercial industrial solutions and continued headwinds in residential solar, offset by solid demand in auto and medical devices.
The Flex Agility Solutions Group comprises Communications & Enterprise Compute and Lifestyle and Consumer Devices businesses. Revenues were down 14% year over year to $3.5 billion.
The Nextracker Group’s revenues rose 38% year over year to $0.7 billion. On Jan 2, 2024, the company spun off all its remaining interest in Nextracker to its shareholders (on a pro-rata basis). Overall, for each Flex ordinary share held as of the record date of Dec 29, 2023, Flex shareholders received roughly 0.17 shares of Nextracker common stock.
Flex's consolidated financial statements will list Nextracker's historical results as well as some of the assets and liabilities from the spin-off as discontinued operations starting with the company's fourth quarter ending Mar 31, 2024.
Operating Details
Non-GAAP gross margin increased 230 basis points (bps) on a year-over-year basis to 10% in the reported quarter.
Non-GAAP selling, general & administrative expenses, as a percentage of revenues, were 3.3%, which increased 40 bps from the year-ago period. Non-GAAP operating margin expanded 190 bps year over year to 6.7%.
Adjusted operating margins of the Flex Reliability Solutions Group was 5.4%, up 100 bps year over year. The Nextracker Group’s adjusted operating margin was 22.8%, up 1,110 bps year over year. The Flex Agility Solutions Group’s adjusted operating margin was 5%, up 50 bps.
Balance Sheet & Cash Flow
As of Dec 31, 2023, cash & cash equivalents totaled $2.76 billion compared with $2.9 billion as of Sep 29, 2023.
As of Dec 31, 2023, total debt (net of current portion) was $3.43 billion compared with $3.41 billion as of Sep 29, 2023.
In third-quarter fiscal 2024, the company generated cash flow of $284 million from operating activities and an adjusted free cash flow of $156 million. In the quarter under review, FLEX repurchased shares worth $275 million.
Guidance
For fourth-quarter fiscal 2024, Core Flex (excluding Nextracker) revenues are expected to be between $5.8 billion and $6.4 billion. Management expects adjusted EPS in the range of 50-60 cents. Adjusted operating income is projected to be between $305 million and $355 million.
For fiscal 2024, Flex expects total flex revenues (including Nextracker contributions for Q1 through Q3) between $27.7 billion and $28.3 billion. It anticipates adjusted EPS in the range of $2.47-$2.57. Adjusted operating margin is projected to be in the range of 5.7-5.9%.
For fiscal 2024, Flex expects core flex revenues between $26 billion and $26.6 billion. It anticipates adjusted EPS in the range of $2.07-$2.17. Adjusted operating margin is projected to be in the range of 4.8-4.9%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -18.64% due to these changes.
VGM Scores
At this time, Flex has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Flex has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Flex belongs to the Zacks Electronics - Miscellaneous Products industry. Another stock from the same industry, KLA (KLAC), has gained 13.9% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
KLA reported revenues of $2.49 billion in the last reported quarter, representing a year-over-year change of -16.7%. EPS of $6.16 for the same period compares with $7.38 a year ago.
KLA is expected to post earnings of $5.26 per share for the current quarter, representing a year-over-year change of -4.2%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
KLA has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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