Summary
FLEX LTD. (FLEX) reported its fiscal second quarter 2019 results on November 2, 2018. The company demonstrated top-line growth, with net sales increasing by 7% to $6.7 billion for the three months ended September 28, 2018, compared to the same period last year. This growth was broad-based across all segments: Communications & Enterprise Compute (CEC), Consumer Technologies Group (CTG), Industrial and Emerging Industries (IEI), and High Reliability Solutions (HRS). The company also adopted new revenue recognition standards (ASC 606), which impacted reported revenue and gross profit, creating contract assets and liabilities on the balance sheet. Profitability saw a decline compared to the prior year, with net income decreasing to $86.9 million from $205.1 million. This was influenced by various factors including the impact of adopting ASC 606, higher interest expenses, and a significant charge related to the wind-down of NIKE footwear manufacturing operations in Mexico. Despite these pressures, FLEX is strategically evolving its portfolio towards businesses with longer product lifecycles and higher margins. Investors should note potential goodwill impairment for the CTG segment, which management is currently testing.
Financial Highlights
51 data points| Revenue | $6.66B |
| Cost of Revenue | $6.23B |
| Gross Profit | $402.30M |
| SG&A Expenses | $228.68M |
| Interest Expense | $35.14M |
| Net Income | $86.89M |
| EPS (Basic) | $0.16 |
| EPS (Diluted) | $0.16 |
| Shares Outstanding (Basic) | 531.50M |
| Shares Outstanding (Diluted) | 534.46M |
Key Highlights
- 1Net sales increased by 7% to $6.7 billion for the three months ended September 28, 2018, driven by growth across all operating segments.
- 2Net income for the quarter decreased to $86.9 million from $205.1 million in the prior year period, impacted by various factors including charges related to the wind-down of operations and increased interest expenses.
- 3The company adopted new revenue recognition standard ASC 606, which resulted in the creation of 'contract assets' and 'contract liabilities' on the balance sheet and had an impact on reported revenue and cost of sales.
- 4Operating expenses (SG&A) decreased by approximately $46 million year-over-year for the quarter, benefiting from prior restructuring programs and reduced acquisition-related costs.
- 5FLEX is actively repurchasing shares, with $453.5 million remaining under its authorized repurchase program as of September 28, 2018.
- 6The company is undergoing a CEO transition, with Michael M. McNamara set to retire effective December 31, 2018.
- 7Management is in the process of testing for a potential goodwill impairment in the Consumer Technologies Group (CTG) segment due to a significant decline in market capitalization.