Flex(FLEX) - 2019 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For fiscal 2019, the company reported revenues of $26.3 billion, an increase of $865 million or 3% year-over-year [13] - Adjusted operating income rose by $86 million or 11% to $872 million, with adjusted operating margin expanding to 3.3% from 3.1% [13] - Adjusted EPS increased by 4.6% to $1.14 from $1.09 [13] - In Q4, revenue was $6.2 billion, down 3% year-over-year, and adjusted operating income was $204 million, up 2% year-over-year [17][19] Business Line Data and Key Metrics Changes - High Reliability Solutions (HRS) revenue was $1.2 billion, down 4% year-over-year, with an adjusted operating margin of 7.7% [20] - Industrial and Emerging Industries (IEI) revenue was $1.5 billion, down 8% year-over-year, but adjusted operating profit grew by 8% to $73 million, with a margin of 4.8% [22][23] - Communications and Enterprise Compute (CEC) revenue was $2 billion, up 6% year-over-year, but adjusted operating margin was 2.2%, down 20 basis points [23] - Consumer Technology Group (CTG) revenue was $1.5 billion, down 7% year-over-year, with an adjusted operating margin of 1.6% [24] Market Data and Key Metrics Changes - Automotive revenues in HRS declined by 5% to $2.8 billion, impacted by market softness, particularly in China [21] - Health Solutions in HRS saw a 10% revenue increase in Q4, ending the year at a record $2 billion [22] - IEI faced anticipated weakness in semiconductor capital equipment and energy sectors [22] Company Strategy and Development Direction - The company aims to focus on core business processes to improve execution, margins, and free cash flow [7][10] - There is a commitment to invest selectively in higher-margin segments while managing the mix of business [15] - The strategy includes rationalizing the CTG business and eliminating non-performing customers [12][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the need for improved consistency in performance and communication [14] - The CEO emphasizes the importance of disciplined execution and operational excellence to drive sustainable growth [10][30] - The company expects to return to consistent free cash flow generation and improve productivity against fixed costs [30] Other Important Information - The company generated $246 million in adjusted cash flow from operations and $120 million in free cash flow in Q4 [25] - Capital expenditures totaled $126 million for the quarter, with a focus on supporting higher-margin long-term programs [26] - The company plans to return over 50% of free cash flow to shareholders via share repurchases [27] Q&A Session Summary Question: Plans for improving margins and business mix - Management is focused on being selective with growth opportunities and is prepared to walk away from non-profitable programs [34][35] Question: Trends in HRS and resource allocation - HRS is critical, with strong bookings in health solutions, but automotive remains a challenge due to market conditions [41] Question: Expectations for CTG margins - Management acknowledges ongoing volatility in CTG and is focused on managing the portfolio to improve margins [45][46] Question: Ramping new programs and predictability - Emphasis on disciplined execution and planning to improve predictability in ramping new programs [49][50] Question: Regional demand visibility - No significant changes in demand visibility across regions compared to previous quarters [76]