It has been about a month since the last earnings report for Flex (FLEX). Shares have added about 2.1% in that time frame, underperforming 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 drivers.
FLEX Q2 Earnings Surpass Estimates
Flex reported second-quarter fiscal 2024 adjusted earnings per share (EPS) of 68 cents, beating the Zacks Consensus Estimate by 17.2%. The bottom line grew 7.9% year over year.
Revenues decreased 3.8% year over year to $7.47 billion. Also, it missed the consensus mark by 0.6%. The downtick was caused by weakness across the Agility Solutions segment.
Revenues for Core Flex (which represents Flex’s total revenues excluding Flex’s 51.47% economic interest in Nextracker) was $6.9 billion, declining 5.1% year over year.
Segment Details
The Flex Reliability Solutions Group comprises Health Solutions, Automotive and Industrial businesses. Revenues were flat year over year to $3.3 billion. Demand remained healthy across the Auto and health business.
The Flex Agility Solutions Group comprises Communications & Enterprise Compute and Lifestyle and Consumer Devices businesses. Revenues were down 10% year over year to $3.6 billion. The downtick was caused due to the softness in comms, enterprise IT and consumer market.
The Nextracker Group’s revenues rose 21% year over year to $0.6 billion. The company has announced its plan to spin-off approximately 51.47% interest in Nextracker to Flex shareholders on a pro-rata basis. It is expected to be completed by the fourth quarter, which is ending on Mar 31, 2024.
Operating Details
Non-GAAP gross margin increased 130 basis points (bps) on a year-over-year basis to 9% in the reported quarter.
Non-GAAP selling, general & administrative expenses, as a percentage of revenues, were 3.2%, which increased 30 bps from the year-ago period.
Non-GAAP operating margin expanded 110 bps year over year to 5.9%.
Adjusted operating margins of the Flex Reliability Solutions Group was 5.2%, down 10 bps year over year. The Nextracker Group’s adjusted operating margin was 19.5%, up 1,040 bps year over year. The Flex Agility Solutions Group’s adjusted operating margin was 4.6%, up 30 bps.
Balance Sheet & Cash Flow
As of Sep 29, 2023, cash & cash equivalents totaled $2.9 billion compared with $2.66 billion as of Jun 30, 2023.
As of Sep 29, 2023, total debt (net of current portion) was $3.41 billion compared with $3.44 billion as of Jun 30, 2023.
In second-quarter fiscal 2024, the company generated cash flow from operating activities of $357 million and an adjusted free cash flow of $213 million.
In the quarter under review, FLEX repurchased shares worth $309 million.
Guidance
For third-quarter fiscal 2024, Total Flex (including Nextracker) revenues are expected to be between $6.5 billion and $6.9 billion. Management expects adjusted EPS in the range of 57-65 cents. Adjusted operating income is projected to be between $375 million and $425 million.
For third-quarter fiscal 2024, Core Flex (excluding Nextracker) revenues are expected to be between $5.9 billion and $6.3 billion. Management expects adjusted EPS in the range of 47-52 cents. Adjusted operating income is projected to be between $280 million and $310 million.
For fiscal 2024, Flex now expects total revenues between $28.1 billion and $28.8 billion compared with the earlier guidance of $30.5-$31.5 billion. It anticipates adjusted EPS in the range of $2.49-$2.66 compared with the earlier guidance of $2.35-$2.55. Adjusted operating margin is projected to be in the range of 5.8-6% compared with the earlier guidance of 5-5.2%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -5.92% due to these changes.
VGM Scores
Currently, 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Flex has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
