Flex Ltd ((FLEX)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Flex Ltd’s recent earnings call painted a largely positive picture, driven by record margins, significant growth in the data center business, and strategic acquisitions. However, concerns linger regarding the automotive market, geopolitical risks, and tax issues. On balance, the positive developments notably overshadow the challenges.
Record Quarterly Operating Margin and EPS
Flex Ltd achieved a record quarterly operating margin of 6.1% and earnings per share of $0.77, marking the first time the company has surpassed a 6% operating margin. This success is attributed to strong strategic execution, improved business mix, and enhanced efficiency across all units.
Data Center Business Growth
The data center segment experienced a substantial 45% year-over-year growth, fueled by AI-driven cloud expansion and increased demand for hyperscale cloud integration. Flex anticipates maintaining this growth trajectory in the coming quarter.
Strong Medical Device Demand
There was notable demand for medical devices in Q3, with Flex showcasing exceptional capabilities in FDA-regulated medical technology design and manufacturing. This includes securing a significant contract for GLP-1 injectors.
Acquisition of JetCool and Crown Systems
Flex’s recent acquisitions of JetCool and Crown Systems have bolstered its data center portfolio with critical technologies, including direct to chip liquid cooling and power solutions, enhancing its service offerings.
Strong Free Cash Flow
The company reported free cash flow of $306 million for the quarter, with a fiscal year-to-date total of $757 million, setting them on track to surpass their full-year target of $800 million.
Soft Automotive Market
Flex voiced concerns over softer trends in the automotive market due to a challenging macro environment but remains optimistic about long-term trends such as advanced computing and powertrain modernization.
Potential Impact of Tariffs and Geopolitical Events
The company acknowledged the potential risks from tariffs and geopolitical events, which could affect manufacturing strategies and volumes, highlighting the need for vigilance in navigating these challenges.
Tax Rate Impact on EPS
Adjusted EPS for the next quarter is expected to be lower, primarily due to changes in the tax rate, which could affect profit outcomes.
Forward-Looking Guidance
Flex projects fourth-quarter revenue between $6 billion and $6.4 billion, with adjusted EPS ranging from $0.65 to $0.73. For the full fiscal year 2025, expected revenue is between $25.4 billion and $25.8 billion, with an adjusted operating margin of 5.6% to 5.7% and adjusted EPS between $2.57 and $2.65. The company also emphasized its robust cash flow management and stock repurchase activities.
In conclusion, Flex Ltd’s earnings call highlighted strong performance and strategic advancements, with record operating margins and significant growth in key segments like data centers and medical devices. While challenges exist in the automotive sector and due to geopolitical factors, the company remains on a solid financial footing with promising guidance for the future.
