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Celestica Inc. (CLS) Q2 2024 Earnings Call Transcript

AInvestThursday, Jul 25, 2024 9:11 pm ET
2min read

Celestica, a leading global electronics manufacturing services and IoT solutions provider, recently held its Q2 2024 earnings call, highlighting robust financial performance and promising growth opportunities. The company reported revenues of $2.39 billion and an adjusted EPS of $0.91, both exceeding the high-end of the guidance ranges. This performance was underpinned by a 6.3% non-IFRS operating margin, up from the midpoint of the revenue and adjusted EPS guidance ranges. The company also generated solid adjusted free cash flow of $63 million during the quarter, underscoring its financial health and operational efficiency.

Strong Performance in the CCS Segment

The CCS segment, which accounts for 68% of total company revenues, saw a 51% year-to-year increase in revenues and a 7.2% segment margin, up 120 basis points compared to the prior-year period. This growth was driven by strong demand for Celestica's HPS offering, particularly from hyperscale customers, who are investing heavily in data center infrastructure. The company's strategic focus on large-scale investments in this area is paying off, as evidenced by the 94% year-over-year growth in HPS revenue and the 800G switch programs.

Challenges in the ATS Segment

The ATS segment, which accounts for 32% of total company revenues, experienced an 11% year-over-year decline in revenues, primarily due to continued softness in the industrial business. However, the company remains optimistic about the strength in other parts of the ATS portfolio, particularly the A&D and capital equipment businesses, which saw solid double-digit revenue growth in the second quarter.

Strategic Positioning and Future Outlook

Celestica's management expressed confidence in the company's positioning and ability to capitalize on high-value opportunities across its portfolio. The company is well-positioned to strengthen its leadership position in key end markets, including data center infrastructure, telecommunications, and industrial automation. Looking ahead, Celestica anticipates continued growth in the second half of the year, driven by the ramping of new programs and the shift towards more distributed regional data centers.

Financial Metrics and Guidance

Key financial metrics highlighted during the call include a 23% year-over-year increase in revenue, an adjusted effective tax rate of 20%, and a gross debt position of $316 million. The company also provided guidance for the third quarter of 2024, projecting revenues of $2.325 billion to $2.475 billion and adjusted earnings per share of $0.86 to $0.96, representing a 40% improvement over the prior-year period.

Investor Questions and Answers

The earnings call also featured a Q&A session with key shareholders and investors, providing insights into their concerns and priorities. Questions ranged from capacity utilization and CapEx plans to program transitions in the server business and the impact of tariff and trade restrictions. Celestica's management provided detailed responses, underscoring their confidence in the company's strategic direction and operational execution.

Conclusion

Celestica's Q2 2024 earnings call painted a picture of a company in strong financial health, with solid growth and margin expansion driven by strategic investments in key areas. The company's strategic focus on data center infrastructure and its ability to capitalize on high-value opportunities position it well for continued growth and success in the future. As Celestica navigates the challenges and opportunities in its markets, investors and stakeholders can look forward to updates on its progress and performance in the coming quarters.

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