Flex Ltd. (FLEX) Earnings & Analysis

Latest quarter

Flex reported Q1 FY2027 revenue of $7.9 billion, up 20.6% from $6.6 billion a year earlier, and adjusted EPS of $1.00, compared with the consensus of $0.93. The company’s revenue was also above the consensus of $7.6 billion. The filing attributes sales growth to higher Communications demand and memory pricing in Integrated Technology Solutions, Industrial growth in Regulated Manufacturing Solutions, and Power, Cloud and Cooling growth in Cloud and Power Infrastructure (CPI).

The company reported diluted EPS of $0.76, up 52.0% from $0.50 a year earlier. Gross margin was 9.42%, up 0.7 percentage points, while operating margin was 4.94%, up 0.2 percentage points. Flex said its gross-margin improvement reflected revenue growth, favorable mix and operational execution. Free cash flow was $41.0 million, compared with $268.0 million a year earlier; CFO Kevin Krumm said it included $24 million of one-time cash costs related to the planned CPI spin-off.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

On the earnings call, Chief Executive Officer Revathi Advaithi said demand tied to AI infrastructure was continuing and that Flex had invested in power, compute and thermal-management technologies. Advaithi said the company sees power, cooling, electrical systems and grid capacity as parts of the infrastructure needed as AI scales. She said Flex’s combination of power, thermal-management and compute technologies, together with global deployment capability, differentiates the company.

Chief Financial Officer Kevin Krumm said CPI revenue increased 35.0% in Q1 FY2027, while adjusted operating income was $214.0 million and adjusted operating margin was 9.70%. Krumm attributed CPI growth to Power and the ramp of new Cloud and Cooling programs, and he said margin expansion in Power contributed to the segment’s results. He also said inventory rose with revenue growth and that first-quarter free cash flow was affected by separation-related cash costs.

When analysts asked about CPI margins, Advaithi said new programs can require initial investment and that margins can improve as programs mature. She said the company was investing in the Power business as it grows, while remaining on track for CPI margin improvement during FY2027. When analysts asked about the pace of CPI growth, Krumm said the company had more than 90% of the next three quarters’ CPI business booked and retained visibility into the business.

Flex’s filing said elevated memory-component prices could increase net sales where costs are passed through to customers, while reducing gross-profit percentage and increasing inventory and working-capital requirements. The filing also said tariff costs and recoveries affected quarterly revenue and cost of goods by approximately one percent, with negligible profitability impact.

Asked about cooling, Advaithi said Flex was qualifying cooling products with customers and described cooling as an early-stage part of CPI’s growth strategy. Chief Commercial Officer Michael Hartung said Communications demand was supported by advanced-networking demand tied to data centers, across multiple customers and product categories.

Guidance

Flex said it raised its FY2027 revenue guidance to $33.7 billion–$35.2 billion from $32.3 billion–$33.8 billion. CFO Kevin Krumm said the company continues to expect FY2027 adjusted operating margin of 7.00%–7.20% and adjusted EPS of $4.42–$4.74.