Flextronics' CEO Discusses F2Q 2012 Results - Earnings Call Transcript

Flextronics ( FLEX)

F2Q 2012 (09/30/11) Earnings Conference Call

October 20, 2011 5:00 PM EST


Kevin Kessel – VP, IR

Paul Read – CFO

Mike McNamara – CEO


Shawn Harrison – Longbow Research

Sean Hannan – Needham & Company

Jim Suva – Citi

Matt Sheerin – Stifel Nicolaus

Kevin Labuz – Deutsche Bank

Brian Alexander – Raymond James

Louis Miscioscia – Collins Stewart

Steve O'Brien – JPMC

Amitabh Passi – UBS

Craig Hettenbach – Goldman Sachs

Amit Daryanani – RBC Capital Markets

Brian White – Ticonderoga



Good afternoon, and welcome to the Flextronics International Second Quarter Fiscal Year 2012 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 the call over to Mr. Kevin Kessel, Flextronics’ Vice President of Investor Relations. Sir, you may begin.

Kevin Kessel

Thank you, Lisa. And welcome to Flextronics’ conference call to discuss the results of our fiscal 2012 second quarter ended September 30 th, 2011.

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 Investors section of our website under Conference Calls and Presentations and it can also be accessed directly from the link on our homepage.

Our agenda for today’s call will begin with Paul Read reviewing the financial highlights from the second quarter of fiscal 2012 and Mike McNamara will follow-up with the discussion of the current business environment and developments and trends within our individual business groups, and he will also conclude with our guidance for the third quarter of fiscal 2012 ending in December. Following that, we will take your questions.

Please turn to slide two, for a review of our risks and non-GAAP disclosures. This presentation contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from those set forth in this presentation. Such information is subject to change, and we undertake no duty or obligation to revise, update, or inform you of any changes through forward-looking statements. For a discussion of the risks and uncertainties, you should review our filings with the Securities and Exchange Commission, specifically our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments thereto.

This presentation references both GAAP and non-GAAP financial measures. Please refer to the schedules to the earnings press release and the GAAP versus non-GAAP reconciliation in our Investor section of our website, which contain the reconciliation of the adjusted financial measures to the most directly comparable GAAP measures.

I will now turn the call over to our Chief Financial Officer, Paul Read. Paul?

Paul Read

Thank you, Kevin. And welcome, everyone to our call. Please turn to slide three.

We generated $8.04 billion in revenue for our fiscal 2012 second quarter, which was above the high-end of our guidance range of $7.6 billion to $8.0 billion. Revenue rose to $622 million or $0.08 from the $7.42 billion we reported last year and 7% sequentially.

Our second quarter adjusted operating income was $176 million, down 17% year-over-year and GAAP operating income was a $161 million for the second quarter, down 19% versus our prior year. Adjusted net income for the second quarter was a $158 million, down 12% from the year-ago and GAAP net income for the second quarter was $130 million, down 10% year-over-year.

We reported adjusted earnings per diluted share for the September quarter of $0.22, which was within our adjusted EPS guidance of $0.21 to $0.23 and up 5% sequentially. Our GAAP EPS for the second quarter was $0.18, which was up 6% sequentially.

Our diluted weighted average shares outstanding or WASO for the quarter was 731 million. This was a reduction of 7% or 53 million shares in flow compared with 784 million shares reported a year-ago, which was driven by our share buyback program. During the quarter we started our fourth $200 million share buyback program since June of last year and we repurchased approximately 19 million shares for a $106 million at an average cost of $5.51.

Overall since our recent share repurchase began back in June of last year, we have repurchased $706 million with our stocks totaling approximately 114 million shares or roughly 14% of our outstanding shares prior to the commencement of these programs.

Please turn to slide four. September quarterly revenue expanded both sequentially and year-over-year. We experienced revenue growth on a sequential and year-over-year basis in all segments. Our Industrial and Emerging Industries, barring [ph] our Industrial and Emerging Industries, which Mike will expand on further in his prepared remarks.

Adjusted operating income totaled $176 million and adjusted operating margin was 2.2%. This was negatively impacted by losses equating to approximately 50 basis points in our ODM PC business that were expected. And we are in the process of exiting. It was also significantly impacted by the large reduction in revenues experienced in our Industrial and Emerging Industries segment, which was primarily isolated into the capital equipment business in this segment. Recall that this segment carries greater than the corporate average adjusted operating margins and therefore had a 20 basis points negative effect on margin in the quarter versus expectations.

During the quarter, also incurred certain one-time restructuring cost to right size certain facilities, which had an approximately 15 basis points negative effect on our adjusted operating margin was versus expectations. These three elements together create an overall negative on our adjusted operating margin of 85 basis points.

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