• Revenue: $6.5 billion for Q2 fiscal 2025.
• Adjusted Operating Margin: 5.5%, a record level for Flex.
• Adjusted EPS: $0.64, a quarterly record.
• Gross Profit: $554 million, a record quarterly level.
• Gross Margin: 8.5%, up 90 basis points year-over-year.
• Operating Income: $358 million, with a margin of 5.5%.
• Reliability Revenue: $2.9 billion with a 5.4% operating margin.
• Agility Revenue: $3.6 billion with a 6.1% operating margin.
• Net CapEx: $100 million for Q2.
• Free Cash Flow: $219 million for Q2, $451 million year-to-date.
• Cash Balances: $2.6 billion at the end of Q2.
• Stock Repurchase: $300 million worth of stock repurchased in Q2.
• Q3 Revenue Guidance: $6 billion to $6.4 billion.
• Q3 Adjusted EPS Guidance: $0.60 to $0.66.
• Full Year Revenue Guidance: $24.9 billion to $25.5 billion.
• Full Year Adjusted EPS Guidance: $2.39 to $2.51.

• Warning! GuruFocus has detected 8 Warning Sign with FLEX.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Flex Ltd (NASDAQ:FLEX) reported a solid Q2 with revenue of $6.5 billion, in line with expectations.
• The company achieved a record adjusted operating margin of 5.5% due to strong mix and effective cost management.
• Adjusted EPS reached a quarterly record of $0.64, reflecting a 12% year-over-year increase.
• Flex Ltd (NASDAQ:FLEX) experienced 40% year-over-year growth in its data center portfolio, surpassing the expected 20% long-term CAGR.
• The acquisition of Crown Technical Systems is expected to enhance Flex Ltd (NASDAQ:FLEX)'s data center power portfolio and support growth in the U.S. market.

Negative Points

• Revenue guidance for the full year has been adjusted downwards due to macroeconomic pressures, with expectations now between $24.9 billion and $25.5 billion.
• The automotive segment is experiencing macro-related slowing, which is affecting growth in the second half of the fiscal year.
• Core industrial demand is softer than previously expected, impacting the Reliability Solutions segment.
• Agility Solutions revenue is expected to decline in the low to high single digits, despite strong growth in the cloud sector.
• Concerns about potential under-absorption of costs in the automotive segment due to lower volumes were raised during the call.

Q & A Highlights

Q: Revathi, the power business showed strong growth this quarter of 40% year-on-year. Is this growth sustainable, and how do you plan to grow this business? Will it be through more M&A or organic growth? Also, is the power business integral to Flex, or could it be a candidate for a spin-off like Nextracker? A: Revathi Advaithi, CEO: The 40% growth is for our overall data center business, which includes both our CEC business and our power business. We feel good about the macro trends in data center growth and the critical role of power in that growth. Flex is uniquely positioned to deliver both power infrastructure and IT solutions integration, which supports long-term growth. We will continue to pursue both organic growth and smart M&A, like our recent acquisition of Crown Technical Systems, to enhance our capabilities.

Q: Despite revenue challenges, you seem confident in maintaining full-year operating margins. What gives you this confidence, especially with potential volume declines in automotive? A: Jaime Martinez, Interim CFO: Our confidence comes from the successful progression of program ramps, particularly in automotive and data center, which support margins. The mix of our portfolio continues to improve, with strong growth in high-value segments like data center and medical devices. We also manage costs effectively, which supports margin expansion and double-digit EPS growth.

Q: Are you seeing any changes in order trends for your data center exposure, particularly in compute and power business? A: Revathi Advaithi, CEO: While we don't disclose forward-looking orders, our 40% growth rate this quarter indicates a strong backlog and order pipeline. We are comfortable with our revenue growth projections and believe in the robust long-term potential of the data center segment.

Q: With the strong growth in the cloud segment, how should we think about the cadence of double-digit growth in the coming quarters? Are there opportunities for new logos or increased wallet share with existing customers? A: Revathi Advaithi, CEO: Our growth is driven by a unique portfolio in data centers, including IT solutions and power products. We focus on expanding wallet share through new technologies, products, and services rather than just acquiring new logos. Our recent acquisition in the power space also supports this growth strategy.

Q: Regarding operating margin expansion, some peers target 6% plus. With potential recovery in reliability subsegments, do you think this target is reasonable for Flex? A: Revathi Advaithi, CEO: We have already set a long-term target of 6% plus operating margins, driven by improved mix, portfolio services expansion, and operational efficiencies. Jaime Martinez, Interim CFO, adds that our performance in reliability and agility segments supports this target, even with revenue fluctuations.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.