A month has gone by since the last earnings report for Flex (FLEX). Shares have added about 12% 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 drivers.
FLEX’s Q2 Earnings Top Estimates
Flex reported second-quarter fiscal 2025 adjusted earnings per share (EPS) of 64 cents, surpassing the Zacks Consensus Estimate by 14.3%. The bottom line compared favorably with 57 cents posted in the prior-year quarter.
Revenues declined 6% year over year to $6.5 billion. However, it beat the consensus mark by 0.4%. The downtick was caused by continued slowdown across the Agility and Reliability Solutions business segments.
Segment Details
The Flex Reliability Solutions Group encompasses Health Solutions, Automotive and Industrial businesses. Revenues plunged 11% year over year to $2.9 billion. The contraction was caused by weak macro trends in core industrial areas. However, healthy demand in data center power and healthcare devices offered some cushioning.
The Flex Agility Solutions Group comprises Communications & Enterprise Compute or CEC and Lifestyle and Consumer Devices businesses. Revenues remained flat at $3.6 billion. Positive trends were observed in cloud amid softness in enterprise IT and non-cloud-related networks.
Operating Details
Non-GAAP gross margin expanded 90 basis points (bps) year over year to 8.5% in the reported quarter.
Non-GAAP operating income came in at $358 million, up from the prior-year level of $327 million. Non-GAAP operating margin expanded 80 bps to 5.5%.
Non-GAAP selling, general & administrative expenses totaled $196 million, down 2% year over year.
The adjusted operating margins of the Flex Reliability Solutions Group were 5.4%, up 20 bps from the prior-year level. The adjusted operating margins of the Flex Agility Solutions Group improved 150 bps to 6.1%.
Balance Sheet & Cash Flow
As of Sept. 27, 2024, cash & cash equivalents and long-term debt (net of current portion) were $2.6 billion and $3.18 billion, respectively, compared with $2.53 billion and $3.27 billion a year ago.
The company generated a second-quarter fiscal 2025 cash flow from operating activities of $319 million and an adjusted free cash flow of $219 million.
As of Sept. 27, 2024, FLEX repurchased shares worth $750 million.
Outlook
For the third quarter of fiscal 2025, Flex expects revenues to be between $6 billion and $6.4 billion. Management expects adjusted earnings of 60-66 cents per share, excluding 7 cents for net restructuring charges, 8 cents for stock-based compensation expense and 3 cents for net intangible amortization. Adjusted operating income is projected to be between $335 million and $365 million.
For the Reliability Solutions business, management forecasts sales to remain flat to down mid-single digits owing to macro weaknesses in the automotive vertical. Agility Solutions’ revenues are anticipated to be down low to high single digits, with steady growth expected in cloud and other end markets.
Due to macro headwinds, Flex now expects revenues to be between $24.9 billion and $25.5 billion for fiscal 2025. Earlier it projected revenues in the $25.4-$26.4 billion band.
It now anticipates adjusted earnings in the range of $2.39-$2.51 per share, excluding 30 cents for stock-based compensation expense, 19 cents for net restructuring charges and 13 cents for net intangible amortization. Earlier EPS projections ranged from $2.30 to $2.50 per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
At this time, Flex has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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.
Outlook
Flex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Research Chief Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners UpFlex Ltd. (FLEX) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
