Flextronics International Ltd. (
reported first quarter earnings of 16 cents per share, which
surpassed the Zacks Consensus Estimate by 4 cents but declined
from 21 cents reported in the year-ago quarter.
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Revenues declined 3.1% from the year-ago quarter to $5.79
billion, slightly short of the Zacks Consensus Estimate of $5.47
billion. Revenues were slightly higher than management's guided
range of $5.3 billion to $5.6 billion. The year-over-year decline
in revenues was primarily due to sluggish demand in the telecom
The Integrated Network solutions segment, the largest revenue
contributor (44.0% of revenues) in the quarter, declined 9.0%
from the year-ago quarter to $2.53 billion. High velocity
solutions (26.0% of revenues) segment revenues remained flat on a
year-over-year basis at $1.55 billion.
Revenues from the Industrial and Emerging Industries (16.0% of
revenues) declined 7.0% year over year to $906.0 million. High
Reliability Solutions revenues (14.0% of revenues) improved 20.0%
from the year-ago quarter to $807.0 million.
Gross margins remained flat on a year-over-year basis at 6.0%.
Selling, general & administrative (SG&A) expense as
percentage of revenues increased 60 basis points (bps) from the
year-ago quarter to 3.8%. As a result, operating margin
contracted 60 bps to 2.2% in the first quarter.
Net income as a percentage of revenues was 1.8% compared with
2.4% in the year-ago quarter.
Flextronics exited the quarter with cash and cash equivalents of
$1.28 billion compared with $1.59 billion at the end of the
previous quarter. Total debt was $2.06 billion versus $2.07
billion in the previous quarter.
For the second quarter, total revenue is expected to be in the
range of $6.1 billion to $6.4 billion. Adjusted SG&A is
expected to be $215.0 million, while operating income is expected
to be in the range of $150.0 million to $175.0 million.
Management expects adjusted earnings in the range of 19 cents to
22 cents per share.
Flextronics forecasts Integrated Network solutions and Industrial
and Emerging Industries segment revenues to increase in low
single digits on a quarter-over-quarter basis.
High Reliability Solutions revenues are expected to remain flat
sequentially. High Velocity Solutions is expected to rise
approximately 25.0% to 30.0% due to higher contribution from the
Motorola manufacturing unit in Brazil and Tianjin China.
Flextronics has undertaken a number of new initiatives to
gain a competitive edge, which includes divestiture of non-core
assets and deployment of new technologies. New programs are
expected to boost production volumes in fiscal 2014, although
profitability is expected to remain weak due to continuing
In this regard, we believe that strategic acquisitions and strong
new bookings will also drive top-line growth over the long term.
However, macroeconomic concerns and weak end-market demands are
major headwinds in the near term.
Moreover, the portfolio realignment is also expected to hurt
Flextronics' top-line growth in the near term. Further,
increasing competition from
Jabil Circuit Inc. (
Plexus Corp (
remains a concern going forward.
Currently Flextronics has a Zacks Rank #3 (Hold).