10-QPeriod: Q2 FY2021

FLEX LTD. Quarterly Report for Q2 Ended Sep 25, 2020

Filed November 2, 2020For Securities:FLEX

Summary

FLEX LTD. (FLEX) reported its financial results for the second quarter and first half of fiscal year 2021, ending September 25, 2020. The company generated net sales of $5.99 billion for the quarter and $11.14 billion for the six-month period, representing a decrease from the prior year's comparable periods, largely attributed to ongoing impacts from the COVID-19 pandemic, particularly in the Flex Agility Solutions (FAS) segment. Despite the revenue decline, the company demonstrated improved profitability metrics, with gross profit increasing significantly year-over-year due to a more favorable business mix and lower restructuring charges. The company has realigned its reporting structure into two segments: Flex Agility Solutions (FAS) and Flex Reliability Solutions (FRS). The FRS segment showed strong performance, particularly in Health Solutions, while the FAS segment experienced a revenue decrease driven by lower demand in Consumer Devices and a strategic shift away from high-volatility businesses. FLEX is actively managing its financial position, demonstrating adequate liquidity and refinancing its debt structure, including issuing new notes and repaying a term loan. The company continues to navigate the uncertain economic environment while focusing on strategic restructuring and operational efficiency.

Financial Highlights

50 data points
Beta

Revenue

$5.99B

6.6% Gross Margin

Net Income

$113.00M

1.9% Net Margin

EPS (Diluted)

$0.22

Total Assets

$15.00B

Cash & Equivalents

$2.36B

Free Cash Flow

$189.00M

Financial Statements
Beta
Revenue$5.99B
Cost of Revenue$5.57B
Gross Profit$395.00M
SG&A Expenses$193.00M
Operating Income$175.00M
Interest Expense$38.00M
Net Income$113.00M
EPS (Basic)$0.23
EPS (Diluted)$0.22
Shares Outstanding (Basic)501.00M
Shares Outstanding (Diluted)504.00M

Key Highlights

  • 1Net sales for the quarter were $5.99 billion, a 2% decrease year-over-year, and $11.14 billion for the six-month period, a 9% decrease, largely due to COVID-19 impacts on the FAS segment.
  • 2Gross profit significantly improved, increasing by $206 million year-over-year for the quarter to $395 million (6.6% of net sales) and by $156 million for the six-month period to $698 million (6.3% of net sales), driven by a higher mix of more profitable business in the FRS segment and reduced restructuring charges.
  • 3The company reported a net income of $113 million for the quarter and $165 million for the six-month period, a substantial improvement from the net loss in the prior year's comparable periods.
  • 4Flex Agility Solutions (FAS) segment sales decreased by 7% for the quarter and 17% for the six months, impacted by lower demand in Consumer Devices and strategic business shifts.
  • 5Flex Reliability Solutions (FRS) segment sales increased by 6% for the quarter and 3% for the six months, bolstered by strong performance in Health Solutions.
  • 6Total COVID-19 related costs incurred in the first half of fiscal year 2021 were over $130 million.
  • 7The company successfully issued new debt, including $675 million of 3.750% Notes due February 2026 and $650 million of 4.875% Notes due May 2030, and used proceeds to repay a term loan, strengthening its liquidity and capital structure.

Frequently Asked Questions

For the three-month period ended September 25, 2020, FLEX reported net sales of $5.99 billion, a decrease of 2% from $6.09 billion in the same period last year. For the six-month period ended September 25, 2020, net sales were $11.14 billion, a decrease of 9% from $12.26 billion in the prior year. This decline was primarily attributed to the impact of COVID-19, particularly affecting the Flex Agility Solutions (FAS) segment.

The Flex Agility Solutions (FAS) segment saw a 7% decrease in quarterly net sales and a 17% decrease in six-month net sales, driven by lower demand in Consumer Devices and a strategic shift away from high-volatility businesses. The Flex Reliability Solutions (FRS) segment experienced a 6% increase in quarterly net sales and a 3% increase in six-month net sales, primarily due to strong performance in Health Solutions. Overall segment income for FAS was $88 million for the quarter and $160 million for the six months, while for FRS it was $179 million for the quarter and $294 million for the six months.

The COVID-19 pandemic negatively impacted FLEX's results, with total COVID-19 related costs exceeding $130 million in the first half of fiscal year 2021. These costs included enhanced health and safety protocols, incremental labor and supply chain costs, and under-absorption of idle capacity. The pandemic led to demand and production pressures in certain end markets, contributing to the overall revenue decline.

Despite the decrease in net sales, FLEX demonstrated improved profitability. Gross profit for the quarter increased by $206 million year-over-year to $395 million (6.6% of net sales), and for the six-month period, it increased by $156 million to $698 million (6.3% of net sales). This improvement was driven by a higher mix of more profitable business (FRS segment contributing a larger portion of revenue), reduced restructuring charges compared to the prior year, and lower customer-related asset impairments.