A month has gone by since the last earnings report for Flex (FLEX). Shares have added about 26.1% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Flex Q4 Earnings Beat Estimates, Revenues Fall Y/Y
Flex Ltd. reported fourth-quarter fiscal 2020 adjusted earnings of 28 cents per share, which increased 11.8% from the year-ago quarter’s figure, and beat the Zacks Consensus Estimate by 7.7%.
Revenues declined 6.7% from the year-ago quarter’s tally to $5.484 billion.
The global COVID-19 outbreak as well as changes to the product mix to limit exposure to high volatility and short cycle businesses impacted the top line.
Segmental Performance in Detail
Communications & Enterprise Compute or CEC (27.7% of revenues) declined approximately 23% from the year-ago quarter to $1.517 billion. Sluggish demand from networking, data centers, edge compute and telecom customers affected fourth-quarter fiscal results.
Consumer Technologies Group or CTG (17.7% of revenues) slumped 37% from the year-ago quarter’s figure to $971 million. The downside was caused by COVID-19 induced supply chain disruptions and the portfolio reductions in high volatility businesses.
Industrial & Emerging Industries or IEI (34% of revenues) were $1.866 billion, which increased 23% on a year-over-year basis. The segment witnessed solid demand across diversified all markets. Notably, renewable energy solutions witnessed strong growth during the quarter.
High Reliability Solutions or HRS (19.3% of revenues) revenues were $1.131 billion, down 6% from the year-ago quarter’s figure due to a decline in automotive and health business. Automotive was impacted by production shutdowns at OEM customers due to COVID-19 related lockdowns.
During the quarter, the company announced a change in its reportable segments. From fiscal 2021, Flex expects to report its financial performance through two new segments — Flex Agility Solutions Group and Flex Reliability Solutions Group.
Non-GAAP gross margin expanded 50 basis points (bps) on a year-over-year basis and came in at 7.1% in the reported quarter, primarily attributable to favorable business mix and operational efficiency.
Non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of revenues, expanded 10 bps to 3.4%.
Non-GAAP operating margin expanded 50 bps on a year-over-year basis to 3.8%. Stringent cost measures and improving IEI segment performance favored margin expansion.
Segment wise, CEC generated $31 million in adjusted operating profit, translating in adjusted operating margin of 2.1%. CTG raked in $6 million in adjusted operating profit, exhibiting adjusted operating margin of 0.6%. IEI reported $134 million in adjusted operating profit, reflecting adjusted operating margin of 7.2%. HRS generated $63 million in adjusted operating profit, exhibiting adjusted operating margin of 5.6%.
Balance Sheet & Cash Flow
As of Mar 31, 2020, cash & cash equivalents were $1.923 billion, up from $1.789 billion as of Dec 31, 2019. Total debt (long-term plus short term) was $2.838 billion as of Mar 31, up from $2.790 billion as of Dec 31, 2019.
Net cash generated by operating activities was $166 million during the reported quarter compared with $50.9 million used in operations in the previous quarter. Free cash flow came in at $134 million compared with $237.8 million reported in the prior quarter.
During the fiscal fourth quarter, the company repurchased more than 7 million shares for $87 million. However, Flex suspended share repurchases in mid-March to improve liquidity and cash position amid the COVID-19 crisis.
Due to the impact of COVID-19 on the company’s operations as well as the uncertainties prevailing in the market, Flex has not provided any quantitative guidance range for first-quarter fiscal 2021.
However, the company expects fiscal first quarter revenues to decline by a high-single to low double digits percentage sequentially due to the impact of COVID-19.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -32.61% due to these changes.
Currently, Flex has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Flex has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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