It has been about a month since the last earnings report for Flex (FLEX). Shares have added about 8.2% 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 Q2 Earnings and Revenues Top Estimates
Flex reported second-quarter fiscal 2023 adjusted earnings of 63 cents per share, beating the Zacks Consensus Estimate by 23.5%. The bottom line also grew 31.2% year over year.
Revenues increased 25% year over year to $7.8 billion, surpassing the consensus mark by 7.9%. The company benefited from strength across the Agility Solutions and Reliability Solutions segments backed by a strong customer backlog.
Segment Details
The Flex Agility Solutions Group comprises the Communications & Enterprise Compute or CEC, Lifestyle and Consumer Devices businesses. The group’s revenues were up 16% year over year to $4 billion.
Agility continued to grow at a profitable rate. The increases in CEC and Lifestyle were partially offset by macroeconomic constraints.
The Flex Reliability Solutions Group comprises Health Solutions, Automotive and Industrial businesses. The group’s revenues went up 34% year over year to $3.3 billion. Demand remained healthy across the business segment, partly offset by the semiconductor shortage.
The Nextracker group’s revenue went up 40% year over year to $0.5 billion, owing to strong industry demand amid panel availability shortage.
Operating Details
The non-GAAP gross margin remained unchanged on a year-over-year basis at 7.7% in the reported quarter.
The non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of revenues, were 2.9% which decreased 0.2% from the prior-year period.
The non-GAAP operating margin expanded 20 bps year over year to 4.8% on a year-over-year basis.
The Flex Agility Solutions Group’s adjusted operating margin was 4.3%, down 19 bps year over year. The Flex Reliability Solutions Group’s adjusted operating margin was 5.3%, up 17 bps. The Nextracker Group’s adjusted operating margin was 9.1%, up 187 bps.
Balance Sheet & Cash Flow
As of Sep 30, 2022, cash & cash equivalents stood at $2.45 billion compared with $2.65 billion as of Jul 1, 2022.
As of Sep 30, 2022, total debt (net of current portion) stood at $3.08 billion compared with $3.13 billion as of Jul 1, 2022.
In second-quarter fiscal 2023, the company generated cash flow from operating activities of $103 million and a negative adjusted free cash flow of $84 million.
In the quarter under review, the company repurchased shares worth $72 million.
Guidance
For third-quarter fiscal 2023, Flex expects revenues between $7.3 billion and $7.7 billion.
The company expects adjusted earnings of 57-63 cents per share. The adjusted operating income is projected to be between $345 million and $375 million.
For fiscal 2023, Flex expects revenues between $29.1 billion and $30.1 billion.
It expects adjusted earnings of $2.20-$2.35 per share.
The adjusted operating margin is projected to be 4.6-4.8%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
At this time, Flex has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. 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 B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Flex has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Flex Ltd. (FLEX) : Free Stock Analysis Report
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