Flextronics International Ltd.
) reported third quarter 2013 adjusted earnings per share ("EPS")
of 22 cents, ahead of the Zacks Consensus Estimate of 18 cents as
well as the year-ago quarter level of 16 cents, primarily aided
by margin expansion.
Revenues for the quarter were down 18% from the year-ago
quarter to $6.12 billion. Revenues also declined 1% sequentially.
The year-over-year decline in revenues was due to the winding
down of the assembly business with
Research In Motion
) and exit from the ODM PC business in fiscal 2012. However,
reported revenues beat the Zacks Consensus Estimate of $5.98
The Integrated Network Solutions segment, which was the
largest revenue contributor (45% of the total revenue) in the
quarter, declined 2% from the year-ago quarter to $2.74 billion;
primarily due to a weak demand trend in the telecom and
networking sector. However, revenues improved 1% sequentially on
better-than-expected growth in the service storage
High velocity solutions (28% of the total revenue) segment
revenues declined a massive 44% from the year-ago quarter to $1.7
billion, reflecting lower revenues from the ODM PC business and
the winding down of the assembly business with RIM. Sequentially,
the segment recorded a 4% revenue decline due to lower
Revenues from the Industrial and Emerging Industries, which
contributed 15% of the total revenue, declined 3% year over year
and 6% sequentially to $937 million. High Reliability Solutions
revenues (12% of the total revenue) improved 21% from the
year-ago quarter and 9% sequentially to $714 million, primarily
due to continued strong performance of the automotive
Gross profit (including stock-based compensation) for the
quarter declined 10.6% from the year-ago quarter to $344.8
million, due to lower revenue base. However, gross margins
improved 40 basis points ("bps") year over year to 5.6%,
reflecting Flextronics' business transition to the low-volume
Operating income (including stock-based compensation) declined
2.3% year over year to $137.6 million, primarily due to new
program ramp up costs while operating margin improved 30 bps year
over year to 2.2%.
Net Income (including stock-based compensation) was $139.8
million compared with $118.9 million in the year-ago quarter.
Flextronics exited the quarter with cash and cash equivalents
of $1.71 billion compared with $1.56 billion at the end of the
previous quarter. Total debt was $2.09 billion versus $2.10
billion in the previous quarter. Free cash flow was $395 million
versus $342 million in the previous quarter.
For the fourth quarter, management expects adjusted earnings
in the range of 11 cents to 15 cents per share. Total revenue is
expected in the range of $5.0 billion to $5.3 billion.
Moreover, management expects 30% sequential decline in
revenues from High Velocity segment while Integrated Network
Solutions revenues are expected to decline in high-single digits
and Industrial and Emerging solutions revenues are expected to
decline in the mid- to high-single digits.
Moreover, Flextronics expects High Reliability Solutions
revenues to increase in the mid-single-digits range, primarily
aided by the Saturn acquisition. In the fourth quarter,
Flextronics expects to incur an additional pre-tax charge of $100
million - $125 million related to employee severance and benefit
Flextronics has undertaken a number of new initiatives to
enhance its competitive edge, which includes divestiture of
non-core assets and deployment of new technologies. New programs
are expected to boost production volumes by early fiscal 2014,
although profitability is expected to remain weak due to
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 concerns 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.
) remains a concern going forward.
Currently Flextronics has a Zacks Rank #3 (Hold).
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