Flextronics International Ltd. (
F2Q2011 (Qtr End 10/01/10) Earnings Call Transcript
October 27, 2010 5 PM ET
Kevin Kessel – VP, IR
Paul Read – CFO
Mike McNamara – CEO
Amitabh Passi – UBS
Matt Sheerin – Stifel Nicolaus
Sherri Scribner – Deutsche Bank
Steve O’Brien – JPMorgan
William Stein – Credit Suisse
Amit Daryanani – RBC Capital
Shawn Harrison – Longbow Research
Craig Hettenbach – Goldman Sachs
Jim Suva – Citi
Brian Alexander – Raymond James
Lou Miscioscia – Collins Stewart
Alex Blanton – Ingalls & Snyder
Steven Fox – CLSA
Previous Statements by FLEX
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Good afternoon, and welcome to the Flextronics International Second Quarter Fiscal Year 2011 Earnings Conference Call. Today’s call is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.
At this time, for opening remarks and introductions, I would like to turn meeting over to Mr. Kevin Kessel, Flextronics Vice President of Investor Relations. Sir, you may begin.
Thank you, and good afternoon everyone and welcome to Flextronics conference call to discuss our results for our fiscal 2011 second quarter ended October 1. Joining me on the call today is our Chief Executive Officer, Mike McNamara; and our Chief Financial Officer, Paul Read.
The presentation that corresponds to our comments today is posted on the Investor section of our website under the link titled Conference Calls and Presentations. And can also be accessed directly from our home page.
During the call today, Paul will first review our financial results and highlights and Mike will comment on the business environment and trends we’re currently experiencing. Additionally, Mike will provide guidance for the third quarter of fiscal 2011 ending December 31st, 2010, and conclude with quarterly highlights, following that, we will take your questions.
Please turn to slide two, where I will cover the risk and non-GAAP disclosures. This presentation contains forward-looking statements within the meaning of the US Securities Law, including statements related to revenue and earnings guidance, our expectations about our future operating margins and return on invested capital, expected revenue growth in our market segments, expected improvements in profitability of our components business unit, our expectations about the availability of components for our products, and our expectations regarding end market demand for our products and our business in the current economic environment.
These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements, are based on our current expectations, and we assume no obligation to update them. Information about these risks is noted in the earnings press release on slide 12 of this presentation and in the Risk Factors and MD&A sections of our latest annual and quarterly reports filed with the SEC, as well as in our other SEC filings. Investors are cautioned not to place undue reliance on these forward-looking statements.
Throughout this conference call, we will reference both GAAP and adjusted financial results which are non-GAAP financial measures. Please refer to the schedules on the earning press release and the GAAP versus non-GAAP reconciliation in the Investor section of our website, which contain the reconciliation to the adjusted financial measures for the most directly comparable GAAP results.
I will now turn the call over to our Chief Financial Officer, Paul Read.
Thanks Kevin and welcome to everyone on the call today. I will review some of the highlights of our financial performance of the second quarter of fiscal 2011, and Mike will provide some additional insights on our current business trends including our guidance for the third quarter of 2011 ending in December.
Please turn to slide three. Second quarter revenue came in at $7.4 billion, which was above the high end of our guidance range of $6.8 billion to $7.2 billion and represented a strong 13% sequential increase in sales. The increase was nearly double our ten year sequential growth rate for September quarter at 7% and was the third highest growth for this quarter in the last decade.
In addition for the second quarter in a row, we saw sequential growth across all of our markets segments. This was principally driven by new outsourcing programs with both new and existing customers combined with favorable seasonal trends experienced by our mobile, consumer digital and computing businesses.
Adjusted operating income was $213 million, up $23 million or 12% sequentially and 43% above the $149 million a year ago. GAAP operating income which includes stock option expense was a $199 million, up $24 million or 14% versus the prior quarter and more than 60% above the year ago level of $123 million.
Adjusted net income for the second quarter was a $179 million, increasing 16% sequentially from our first quarter and more than 70% from $104 million a year ago. GAAP net income which includes the impact of intangible amortization was a $144 million, expanding 22% from last quarter’s strong result and coming in at more than 7 times at $20 million a year ago.
GAAP net income represented an all-time record high for Flextronics. We reported adjusted earnings per diluted share for the September quarter of $0.23, which was above the high end of our EPS guidance of $0.19 to $0.21 and grew sequentially by 21% from $0.19 last quarter and was almost twice the $0.13 from a year ago. Our GAAP EPS was $0.18 timing an all-time company high and almost 30% above the $0.14 last quarter.
Please turn to slide four. Adjusted SG&A expense totaled $188 million in the quarter, up $4 million sequentially and $23 million year-over-year on revenue increases of $856 million and $1.6 billion respectively. We were able to keep SG&A dollars within our expected range despite significant revenue upside in the quarter. As a result, we leveraged our SG&A percent of revenue down to 2.5% from 2.8% last quarter and a year ago. Despite this being the third lowest quarterly level for SG&A as a percentage of sales, we remain confident that we can clear the leveraged SG&A in the future as we grow revenue.
Our adjusted operating margin was 2.9% and improved 30 basis points from the 2.6% last year. We are continuing to see strong performance from our core EMS businesses and are confident in a continued execution in growth. Unfortunately the strong performance in related margin expansion in being matched by continuous below normalized profitability of our components businesses.