10-KPeriod: FY2019

CELESTICA INC Annual Report, Year Ended Dec 31, 2019

Filed March 16, 2020For Securities:CLS

Summary

Celestica Inc.'s 2019 Form 10-K filing highlights a challenging year marked by an 11% decrease in revenue to $5.9 billion, primarily driven by a significant 19% decline in the Connectivity & Cloud Solutions (CCS) segment due to planned program disengagements, including the notable "Cisco Disengagement." This strategic portfolio review within CCS, aimed at addressing underperforming programs and aligning with strategic objectives, is expected to result in a substantial annualized revenue decline of $1.25 billion once fully implemented. Conversely, the Advanced Technology Solutions (ATS) segment demonstrated resilience with a 3% revenue increase, bolstered by growth in Aerospace & Defense, Industrial, and Healthtech businesses, though this was partially offset by a downturn in the capital equipment sector. The company incurred significant restructuring charges totaling $37.9 million in 2019, with an additional $30 million anticipated in 2020 primarily related to the Cisco Disengagement. Despite the revenue headwinds and restructuring costs, Celestica's gross margin remained stable at 6.5%, supported by a more favorable program mix in CCS and productivity improvements, which offset weaker performance in ATS, including operating losses in the capital equipment business. The company generated strong operating cash flow of $345.0 million in 2019, a significant improvement from the previous year, and ended the year with $479.5 million in cash and cash equivalents. Looking ahead, Celestica anticipates further revenue declines in 2020 but expects an increase in non-IFRS operating margin and adjusted earnings per share due to ongoing cost actions and resource reallocation.

Key Highlights

  • 1Revenue decreased by 11% to $5.9 billion in 2019, primarily due to a 19% decline in the CCS segment.
  • 2Planned program disengagements, including the Cisco Disengagement, are expected to reduce annualized CCS segment revenue by $1.25 billion.
  • 3The ATS segment revenue grew by 3% driven by Aerospace & Defense, Industrial, and Healthtech businesses.
  • 4Restructuring charges amounted to $37.9 million in 2019, with an additional $30 million anticipated in 2020.
  • 5Gross margin remained stable at 6.5% in 2019, despite lower revenue, due to favorable program mix and productivity improvements.
  • 6Operating cash flow significantly improved to $345.0 million in 2019.
  • 7The company expects further revenue declines in 2020 but anticipates improved non-IFRS operating margin and adjusted earnings per share.

Frequently Asked Questions

The primary driver of Celestica's revenue decline in 2019 was a significant 19% decrease in the Connectivity & Cloud Solutions (CCS) segment, largely due to planned program disengagements, including a substantial exit from programs with Cisco Systems, Inc. (Cisco Disengagement), as part of a broader CCS segment portfolio review.

Celestica is addressing the expected revenue decline from program disengagements through a strategic portfolio review focused on exiting underperforming programs and aligning with strategic objectives. The company is also focusing on growing its Advanced Technology Solutions (ATS) segment and diversifying its customer base and product offerings to mitigate the impact of these disengagements.

Celestica anticipates a further decline in revenue for 2020 compared to 2019. However, the company expects an increase in its non-IFRS operating margin and non-IFRS adjusted earnings per share, driven by ongoing cost actions and the reallocation of resources to support growth in other areas of its business.

Celestica incurred restructuring charges totaling $37.9 million in 2019, primarily related to its cost efficiency initiative and the CCS segment portfolio review. The company anticipates incurring an additional $30 million in restructuring charges in 2020, mainly associated with the Cisco Disengagement.