01—Abstract
Summary
Summary of the 10-Q filed July 28, 2014. Cited figures are marked; the original filing is the authoritative source.
Flextronics International Ltd. (FLEX) reported a significant increase in net sales for the quarter ended June 27, 2014, reaching $6.6 billiona, up 14.7% from $5.8 billion in the same period last year.
This growth was driven primarily by the Consumer Technology Group (CTG) and Industrial & Emerging Industries (IEI) segments, with CTG benefiting from the acquisition of manufacturing operations from Google's Motorola Mobility LLC. Despite the robust sales increase, the company experienced a substantial decrease in net cash provided by operating activities, which moved from $198.6 millionb in the prior year's quarter to a negative $81.2 million. This was largely attributed to changes in working capital, specifically a reduction in customer deposits.
Profitability saw improvement, with net income rising to $173.9 millionc from $59.3 million in the prior year, translating to diluted EPS of $0.29 compared to $0.09. This was supported by a reversal of a previously recorded $55.0 million contractual obligation, which boosted "Other charges (income), net" to a significant income figure.
The company also continued its share repurchase program, demonstrating a commitment to returning value to shareholders. Investors should monitor the working capital trends and the integration of recent acquisitions as key factors influencing future cash flows and profitability.
02—Key points
Key Highlights
- Net sales increased by 14.7% year-over-year to $6.6 billion, driven by growth in CTG and IEI segments.
- Net income grew significantly to $173.9 million ($0.29 diluted EPS) from $59.3 million ($0.09 diluted EPS) in the prior year period.
- Operating cash flow turned negative at $(81.2) million, a sharp decline from $198.6 million in the prior year, largely due to working capital changes.
- Gross profit margin improved to 5.7% from 5.4% year-over-year, benefiting from the absence of restructuring charges recorded in the prior year's quarter.
- Selling, general, and administrative (SG&A) expenses decreased by 6.4% year-over-year as a percentage of net sales, reflecting cost reduction measures.
- The company repurchased 10.5 million shares for $102.1 million during the quarter.
- Google (including Motorola) accounted for over 10% of net sales in the current quarter, highlighting customer concentration.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2015filed July 28, 2014Financial Statements
Q1 FY2015 against Q1 FY2014
| Line item | Q1 FY2015Q1 FY2014 | Change |
|---|---|---|
| Revenue | $6.64B$5.79B | +14.7% |
| Cost of Revenue | $6.26B$5.48B | +14.3% |
| Gross Profit | $380.79M$311.04M | +22.4% |
| SG&A Expenses | $209.28M$223.62M | −6.4% |
| Interest Expense | $18.50M$20.20M | −8.4% |
| Net Income | $173.89M$59.26M | +193.4% |
| EPS (Basic) | $0.30$0.09 | +233.3% |
| EPS (Diluted) | $0.29$0.09 | +222.2% |
| Shares Outstanding (Basic) | 587.23M626.12M | −6.2% |
| Shares Outstanding (Diluted) | 601.30M639.90M | −6.0% |
05—Questions
Frequently Asked Questions
What drove the significant increase in net sales?
Net sales increased by 14.7% to $6.6 billion, primarily driven by the Consumer Technology Group (CTG) and Industrial & Emerging Industries (IEI) segments. The CTG's growth was significantly influenced by the acquisition of manufacturing operations from Google's Motorola Mobility LLC and subsequent ramp-up of business.
Why did operating cash flow become negative in this quarter?
Operating cash flow turned negative to $(81.2) million from positive $198.6 million in the prior year. This was mainly due to unfavorable changes in working capital, particularly a reduction in customer deposits which had previously boosted cash from operations.
What led to the substantial increase in net income?
Net income more than doubled to $173.9 million. A key factor was the reversal of a $55.0 million contractual obligation that had been recognized in the prior fiscal year, which positively impacted the 'Other charges (income), net' line item. Additionally, the overall sales growth and improved gross profit contributed to the increase.
How is the company managing its debt and capital structure?
Flextronics had $1.3 billion in cash and cash equivalents and $2.1 billion in borrowings as of June 27, 2014. The company has a $1.5 billion revolving credit facility and is actively repurchasing its shares under an approved program. Management believes its current cash, anticipated operating cash flows, and available credit facilities are sufficient to fund operations for at least the next twelve months.
06—Continue