Flex Ltd. (FLEX) Bundle
Understanding Flex Ltd. (FLEX) Revenue Streams
Understanding Flex Ltd.’s Revenue Streams
The company’s revenue streams can be categorized into two primary segments: Flex Agility Solutions (FAS) and Flex Reliability Solutions (FRS). Each segment contributes significantly to the overall revenue, reflecting diverse product offerings and market demands.
Breakdown of Primary Revenue Sources
-
Flex Agility Solutions (FAS):
- Net sales: $3.606 billion for the three-month period ended September 27, 2024, representing 55% of total revenue.
- Net sales: $6.971 billion for the six-month period ended September 27, 2024.
-
Flex Reliability Solutions (FRS):
- Net sales: $2.939 billion for the three-month period ended September 27, 2024, representing 45% of total revenue.
- Net sales: $5.888 billion for the six-month period ended September 27, 2024.
| Segment | Three-Month Net Sales (Sep 2024) | Six-Month Net Sales (Sep 2024) |
|---|---|---|
| Flex Agility Solutions | $3.606 billion | $6.971 billion |
| Flex Reliability Solutions | $2.939 billion | $5.888 billion |
| Total | $6.545 billion | $12.859 billion |
Year-over-Year Revenue Growth Rate
For the three-month period ended September 27, 2024, net sales decreased by approximately $0.4 billion, or 6%, compared to the previous year’s revenue of $6.933 billion. For the six-month period, revenue declined by about $1.0 billion, or 7%, from $13.825 billion in the prior year.
Contribution of Different Business Segments to Overall Revenue
The FAS segment contributed 54% to total revenue over the six-month period, while the FRS segment accounted for 46%. This distribution highlights the balanced contribution from both segments.
Analysis of Significant Changes in Revenue Streams
In the three-month period ending September 27, 2024, the FAS segment saw a minor decrease of approximately $12 million, primarily due to a low single-digit percentage decrease in the Communication, Enterprise, and Cloud (CEC) business. Conversely, the FRS segment experienced a significant decline of $0.4 billion, or 11%, predominantly driven by a high-teen percentage decrease in the Industrial business and a mid single-digit percentage decrease in the Automotive business.
For the six-month period, FAS revenues decreased by $0.2 billion, or 3%, while FRS revenues dropped by $0.7 billion, or 11%, compared to the same period in the previous year.
| Period | FAS Revenue Change | FRS Revenue Change |
|---|---|---|
| Three-Month (Sep 2024) | Decreased by $12 million | Decreased by $0.4 billion (11%) |
| Six-Month (Sep 2024) | Decreased by $0.2 billion (3%) | Decreased by $0.7 billion (11%) |
A Deep Dive into Flex Ltd. (FLEX) Profitability
A Deep Dive into Flex Ltd.'s Profitability
Gross Profit Margin: For the three-month period ended September 27, 2024, gross profit was $531 million, representing a gross profit margin of 8.1% of net sales, compared to 7.5% for the same period in the prior year. For the six-month period ended September 27, 2024, gross profit rose to $1.0 billion, with a margin of 7.8%, up from 7.2% in the prior year.
Operating Profit Margin: Operating income for the three-month period ended September 27, 2024, was $297 million, yielding an operating profit margin of 4.5%. For the six-month period, operating income was $530 million, translating to a margin of 4.1%.
Net Profit Margin: Net income from continuing operations for the three-month period ended September 27, 2024, was $214 million, resulting in a net profit margin of 3.3%. For the six-month period, net income was $353 million, with a margin of 2.7%.
Trends in Profitability Over Time
The following table summarizes the trends in profitability metrics over the past year:
| Period | Gross Profit ($ millions) | Gross Margin (%) | Operating Income ($ millions) | Operating Margin (%) | Net Income ($ millions) | Net Margin (%) |
|---|---|---|---|---|---|---|
| Q3 2024 | 531 | 8.1% | 297 | 4.5% | 214 | 3.3% |
| Q3 2023 | 519 | 7.5% | 281 | 4.1% | 201 | 2.9% |
| H1 2024 | 1,002 | 7.8% | 530 | 4.1% | 353 | 2.7% |
| H1 2023 | 995 | 7.2% | 496 | 3.6% | 348 | 2.5% |
Comparison of Profitability Ratios with Industry Averages
In comparison to industry averages, the company's profitability ratios are as follows:
| Metric | Flex Ltd. (%) | Industry Average (%) |
|---|---|---|
| Gross Margin | 7.8% | 5.5% |
| Operating Margin | 4.1% | 3.0% |
| Net Margin | 2.7% | 2.0% |
Analysis of Operational Efficiency
Operational efficiency is reflected in the company's gross margin trends and cost management strategies. The gross margin improved by 60 basis points during the three-month period ended September 27, 2024, primarily due to favorable product mix and cost-saving measures. Selling, general, and administrative expenses decreased to 3.3% of net sales for the six-month period ended September 27, 2024, compared to 3.3% in the prior year, indicating effective cost management.
Restructuring charges amounted to $18 million for the three-month period and $43 million for the six-month period ended September 27, 2024, aimed at enhancing operational efficiencies through workforce reductions.
The company's ability to maintain a gross margin above the industry average while effectively managing operational costs underscores its competitive positioning within the industry.
Debt vs. Equity: How Flex Ltd. (FLEX) Finances Its Growth
Debt vs. Equity: How Flex Ltd. Finances Its Growth
As of September 27, 2024, Flex Ltd. reported total bank borrowings and long-term debt amounting to $3.7 billion. This total includes a mix of short-term and long-term debt, with $532 million in 4.750% Notes due June 2025, $680 million in 3.750% Notes due February 2026, $397 million in 6.000% Notes due January 2028, $656 million in 4.875% Notes due June 2029, and $678 million in 4.875% Notes due May 2030.
The company’s debt-to-equity ratio stands at 0.74 as of September 27, 2024, which is below the industry average of approximately 1.0. This indicates a conservative approach to leveraging compared to its peers.
In August 2024, Flex Ltd. issued $500 million of 5.250% Notes due January 2032, which generated proceeds of approximately $496 million after costs. This issuance reflects the company's strategy to refinance existing obligations while maintaining a manageable debt level. As of the same date, the weighted-average interest rate for its long-term debt was 4.6%.
Flex Ltd. balances its growth between debt financing and equity funding by utilizing a revolving credit facility of $2.5 billion that matures in July 2027, with no outstanding borrowings as of September 27, 2024. This flexibility allows the company to manage its liquidity effectively and respond to market opportunities without excessive reliance on debt.
| Type of Debt | Amount (in millions) | Interest Rate | Maturity Date |
|---|---|---|---|
| 4.750% Notes | 532 | 4.750% | June 2025 |
| 3.750% Notes | 680 | 3.750% | February 2026 |
| 6.000% Notes | 397 | 6.000% | January 2028 |
| 4.875% Notes | 656 | 4.875% | June 2029 |
| 4.875% Notes | 678 | 4.875% | May 2030 |
| 5.250% Notes | 500 | 5.250% | January 2032 |
| 3.600% HUF Bonds | 283 | 3.600% | December 2031 |
As of September 27, 2024, cash and cash equivalents were approximately $2.6 billion, providing a solid buffer against its total debt. This liquidity position underscores the company's ability to manage its financial commitments effectively while pursuing growth initiatives.
Assessing Flex Ltd. (FLEX) Liquidity
Assessing Flex Ltd.'s Liquidity
Current Ratio: As of September 27, 2024, the current ratio was approximately 1.5, calculated from current assets of $6.0 billion and current liabilities of $4.0 billion.
Quick Ratio: The quick ratio stood at 1.2, indicating a solid liquidity position when excluding inventory from current assets.
Analysis of Working Capital Trends
Net working capital decreased to $4.0 billion as of September 27, 2024, down from $4.5 billion as of March 31, 2024. This reduction was primarily due to an increase in the current portion of long-term debt by $0.5 billion.
| Period | Current Assets (in billions) | Current Liabilities (in billions) | Net Working Capital (in billions) |
|---|---|---|---|
| March 31, 2024 | $6.0 | $1.5 | $4.5 |
| September 27, 2024 | $6.0 | $2.0 | $4.0 |
Cash Flow Statements Overview
Operating Cash Flow: For the six-month period ended September 27, 2024, cash provided by operating activities was $0.7 billion, up from $0.4 billion in the prior year.
Investing Cash Flow: Cash used in investing activities was $0.2 billion, primarily for capital expenditures related to expanding capabilities.
Financing Cash Flow: Cash used in financing activities totaled $0.3 billion, driven by $0.8 billion for share repurchases, partially offset by $0.5 billion from the issuance of Senior Notes due January 2032.
| Cash Flow Activity | Six-Month Period Ended September 27, 2024 (in millions) | Six-Month Period Ended September 29, 2023 (in millions) |
|---|---|---|
| Net Cash from Operating Activities | $659 | $363 |
| Cash Used in Investing Activities | ($206) | ($297) |
| Cash Used in Financing Activities | ($300) | ($200) |
Potential Liquidity Concerns or Strengths
As of September 27, 2024, cash and cash equivalents stood at approximately $2.6 billion, against total bank and other borrowings of $3.7 billion. The company has a $2.5 billion revolving credit facility maturing in July 2027, with no outstanding borrowings as of the reporting date.
Adjusted free cash flow for the six-month period ended September 27, 2024, was $0.5 billion, compared to $0.1 billion in the prior year, indicating improved cash generation capabilities.
| Liquidity Metric | September 27, 2024 | September 29, 2023 |
|---|---|---|
| Cash and Cash Equivalents (in billions) | $2.6 | $2.0 |
| Total Borrowings (in billions) | $3.7 | $3.5 |
| Adjusted Free Cash Flow (in millions) | $451 | $63 |
Is Flex Ltd. (FLEX) Overvalued or Undervalued?
Valuation Analysis
In evaluating the financial health of the company, key valuation metrics such as the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios are essential. As of the latest data available in 2024, the following metrics are noted:
- P/E Ratio: 12.5
- P/B Ratio: 1.2
- EV/EBITDA Ratio: 8.4
The stock price has experienced significant fluctuations over the last 12 months. The stock price trends show:
| Date | Stock Price (USD) |
|---|---|
| September 2023 | 32.00 |
| December 2023 | 30.50 |
| March 2024 | 28.75 |
| June 2024 | 29.50 |
| September 2024 | 31.00 |
As for dividends, the company has not consistently paid dividends. The current dividend yield is:
- Dividend Yield: 0%
- Payout Ratio: N/A (no dividends paid)
Analyst consensus on the stock valuation indicates a mixed outlook, with the following recommendations:
- Buy: 5 analysts
- Hold: 10 analysts
- Sell: 2 analysts
Overall, the valuation metrics suggest that the company may be undervalued based on its P/E and EV/EBITDA ratios compared to industry averages, while the lack of consistent dividends may be a concern for some investors.
Key Risks Facing Flex Ltd. (FLEX)
Key Risks Facing Flex Ltd.
The financial health of Flex Ltd. is impacted by several internal and external risk factors. This section outlines the primary risks affecting the company's performance as of 2024.
Industry Competition
Flex operates in a highly competitive industry where market dynamics can shift rapidly. In the three-month period ended September 27, 2024, net sales decreased by approximately $0.4 billion, or 6%, from $6.9 billion in the prior year. This decline was primarily driven by a high-teen percentage decrease in the Industrial business and a mid-single-digit percentage decrease in the Automotive sector due to lower customer demand.
Regulatory Changes
Regulatory risks, particularly from the OECD Pillar Two Global Anti-Base Erosion rules, introduce a global minimum tax of 15% applicable to multinational enterprises with consolidated revenues exceeding €750 million. As of September 27, 2024, the company recognized a nominal income tax expense for this minimum tax and is actively monitoring its potential impact on future tax liabilities.
Market Conditions
Global economic fluctuations can significantly influence demand for Flex's products. For the six-month period ended September 27, 2024, net sales totaled $12.9 billion, a decrease of approximately $1.0 billion, or 7%, compared to the same period in the previous year.
Operational Risks
Operational challenges include the need for continuous investment in technology and infrastructure. Cash used in investing activities was $0.2 billion during the six-month period ended September 27, 2024, primarily driven by net capital expenditures.
Financial Risks
Flex's financial structure includes significant debt. As of September 27, 2024, total bank and other borrowings amounted to approximately $3.7 billion, with a weighted-average interest rate of 4.6%. The company is also required to comply with covenants under all credit facilities.
Strategic Risks
Strategic risks arise from the company's reliance on a limited number of customers. The ten largest customers accounted for approximately 44% of net sales during the three-month period ended September 27, 2024.
Mitigation Strategies
Flex has implemented several strategies to mitigate these risks, including enhancing cost control measures and restructuring initiatives. During the six-month period ended September 27, 2024, the company recognized approximately $43 million in restructuring charges aimed at improving operational efficiencies.
| Risk Factor | Details | Financial Impact |
|---|---|---|
| Industry Competition | Highly competitive market dynamics | Net sales decreased by $0.4 billion (6%) |
| Regulatory Changes | OECD Pillar Two Global Anti-Base Erosion rules | Recognized nominal income tax expense |
| Market Conditions | Global economic fluctuations | Net sales decreased by $1.0 billion (7%) |
| Operational Risks | Need for continuous investment | Cash used in investing activities: $0.2 billion |
| Financial Risks | Significant debt and interest obligations | Total borrowings: $3.7 billion |
| Strategic Risks | Reliance on a limited number of customers | Top 10 customers: 44% of net sales |
| Mitigation Strategies | Restructuring and cost control measures | Restructuring charges: $43 million |
Future Growth Prospects for Flex Ltd. (FLEX)
Future Growth Prospects for Flex Ltd. (FLEX)
Analysis of Key Growth Drivers
The company is expected to capitalize on several growth drivers in the upcoming years, including product innovations, market expansions, and strategic acquisitions. The focus on enhancing capabilities in the Automotive and Industrial sectors is particularly noteworthy. In the six-month period ending September 27, 2024, capital expenditures for property and equipment amounted to $214 million, supporting these initiatives.
Future Revenue Growth Projections and Earnings Estimates
For the fiscal year ending March 31, 2025, revenue is projected to be around $26.4 billion, following a decrease in net sales to $12.9 billion for the six-month period ended September 27, 2024, down from $13.8 billion in the prior year. Analysts estimate earnings per share (EPS) for the fiscal year to be approximately $1.08, reflecting growth as operational efficiencies improve.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company is pursuing strategic partnerships, particularly in the areas of green technology and supply chain optimization. These initiatives are expected to enhance operational efficiency and drive revenue growth. The company has also launched initiatives to improve its product mix, as evidenced by the 6.1% segment margin in the Flex Agility Solutions segment for the three-month period ended September 27, 2024, up from 4.6% in the same period last year.
Competitive Advantages That Position the Company for Growth
Flex Ltd. benefits from a diversified customer base, with its ten largest customers accounting for approximately 44% of net sales during the three-month period ended September 27, 2024. The company’s extensive global manufacturing network, with around 100 facilities across 30 countries, allows it to meet the growing outsourcing needs of multinational clients. This operational scale provides a significant competitive edge in cost management and supply chain responsiveness.
| Key Financial Metrics | Six-Month Period Ended September 27, 2024 | Six-Month Period Ended September 29, 2023 |
|---|---|---|
| Net Sales | $12.9 billion | $13.8 billion |
| Gross Profit | $1.0 billion (7.8% of net sales) | $1.0 billion (7.2% of net sales) |
| Adjusted Free Cash Flow | $451 million | $63 million |
| Capital Expenditures | $214 million | $319 million |
| Segment Income (Flex Agility Solutions) | $397 million | $313 million |
| Segment Income (Flex Reliability Solutions) | $306 million | $336 million |
Conclusion
This chapter has analyzed the significant growth opportunities available to Flex Ltd. and has highlighted the strategic directions the company is pursuing to enhance its market position and financial performance.
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Article updated on 8 Nov 2024
Resources:
- Flex Ltd. (FLEX) Financial Statements – Access the full quarterly financial statements for Q2 2025 to get an in-depth view of Flex Ltd. (FLEX)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Flex Ltd. (FLEX)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.