01—Abstract
Summary
Summary of the 10-Q filed October 26, 2012. Cited figures are marked; the original filing is the authoritative source.
Flextronics International Ltd. reported a decrease in net sales for the six-month period ended September 28, 2012, down 21.6% to $12.2 billiona compared to the prior year period.
This decline was primarily attributed to the company's strategic shift to rebalance its portfolio, including exiting the ODM PC business and reducing concentration with a major smartphone OEM. Despite lower sales, gross margins improved to 6.0%b from 5.0% due to a more favorable product mix, particularly a reduced contribution from lower-margin High Velocity Solutions (HVS) products. The company also managed its operating expenses effectively, with SG&A as a percentage of net sales increasing slightly due to lower revenues but decreasing in absolute dollar terms.
Net income for the six-month period was $279.0 millionc, an increase from $261.9 million in the prior year. The company maintains a strong liquidity position with $1.56 billion in cash and cash equivalents and adequate borrowing capacity. Free cash flow generation was robust, increasing to $282.6 million for the six months ended September 28, 2012.
02—Key points
Key Highlights
- Net sales declined by 21.6% year-over-year to $12.2 billion for the six months ended September 28, 2012, driven by a strategic portfolio rebalancing and exit from certain businesses.
- Gross margin improved to 6.0% from 5.0% due to a shift towards higher-margin product mix and lower sales from the lower-margin HVS segment.
- Net income increased to $279.0 million for the six months ended September 28, 2012, up from $261.9 million in the prior year period.
- The company reported a significant gain of $23.0 million from the fair value adjustment of warrants to purchase supplier common shares.
- Free cash flow improved to $282.6 million for the six months ended September 28, 2012, from $199.9 million in the prior year.
- Cash and cash equivalents stood at $1.56 billion as of September 28, 2012, indicating a healthy liquidity position.
- The company continued to divest non-core assets and businesses, with plans to sell another non-core business in fiscal 2013.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2013, Flex Ltd. kept $0.02.
- Revenue$6.17B100.0%
- Cost of revenue−$5.81B94.1%
- Gross profit$366.8M5.9%
- Operating costs−$206.3M3.3%
- Operating income$160.5M2.6%
- Interest, other & tax−$9.9M0.2%
- Net income$150.5M2.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2013filed October 26, 2012Financial Statements
Q2 FY2013 against Q2 FY2012
| Line item | Q2 FY2013Q2 FY2012 | Change |
|---|---|---|
| Revenue | $6.17B$7.50B | −17.6% |
| Cost of Revenue | $5.81B$7.64B | −23.9% |
| Gross Profit | $366.77M$400.78M | −8.5% |
| SG&A Expenses | $192.18M$210.38M | −8.6% |
| Operating Income | $160.45M$137.31M | +16.9% |
| Interest Expense | $15.50M$16.60M | −6.6% |
| Net Income | $150.55M$131.97M | +14.1% |
| EPS (Basic) | $0.23$0.18 | +27.8% |
| EPS (Diluted) | $0.22$0.17 | +29.4% |
| Shares Outstanding (Basic) | 666.26M722.21M | −7.7% |
| Shares Outstanding (Diluted) | 678.09M731.05M | −7.2% |
05—Questions
Frequently Asked Questions
What is the primary driver behind the decrease in Flextronics' net sales?
The primary driver for the decrease in net sales is Flextronics' strategic decision to rebalance its business portfolio. This includes exiting the ODM PC business and reducing its concentration with a significant smartphone Original Equipment Manufacturer (OEM). The company is shifting its focus towards higher-margin, more complex non-High Velocity Solutions (HVS) businesses.
How has the company's gross margin been impacted by the portfolio changes?
Despite the decline in overall net sales, Flextronics has experienced an improvement in its gross margin. This is largely due to a more favorable product mix, with a reduced contribution from lower-margin High Velocity Solutions (HVS) products and an increased proportion of higher-margin non-HVS business.
What is the significance of the gain on warrants to purchase supplier shares?
Flextronics recorded a $23.0 million gain in the three-month and six-month periods ended September 28, 2012, due to the fair value adjustment of warrants it holds to purchase common shares of a supplier. These warrants are derivative instruments whose fair value is adjusted at each reporting date. While this provided a significant boost to current period results, investors should note that future fair value adjustments could also impact earnings.
What is the company's current liquidity and cash flow situation?
Flextronics maintains a strong liquidity position with $1.56 billion in cash and cash equivalents as of September 28, 2012. Cash provided by operating activities was robust at $527.8 million for the six-month period, and free cash flow increased to $282.6 million. The company also has a significant revolving credit facility with no outstanding borrowings as of the reporting date, indicating ample financial flexibility.
06—Continue