Q4 Revenue: $6.4 billion, up nearly 4% year-over-year. Q4 Adjusted Operating Margin: 6.2%, a quarterly record. Q4 Adjusted EPS: $0.73, up 28% year-over-year. Full Year Revenue FY25: $25.8 billion, down 2% year-over-year. Full Year Adjusted Operating Margin FY25: 5.7%, a record level. Full Year Adjusted EPS FY25: $2.65, up 23% year-over-year. Free Cash Flow FY25: Over $1 billion, a record high. Data Center Revenue FY25: Approximately $4.8 billion, up about 50% year-over-year. Q4 Gross Margin: 9.4%, up 80 basis points year-over-year. Q4 Operating Profit: $396 million. Q4 Reliability Segment Revenue: $2.9 billion, down 1.3% year-over-year. Q4 Agility Segment Revenue: $3.5 billion, up 8.2% year-over-year. Full Year CapEx FY25: $423 million, approximately 1.6% of revenue. FY26 Revenue Guidance: $25 billion to $26.8 billion. FY26 Adjusted Operating Margin Guidance: 6% to 6.1%. FY26 Adjusted EPS Guidance: $2.81 to $3.01 per share. Q1 FY26 Revenue Guidance: $6 billion to $6.5 billion. Q1 FY26 Adjusted EPS Guidance: $0.58 to $0.66 per share.

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Release Date: May 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Flex Ltd (NASDAQ:FLEX) reported a strong finish to the fiscal year with Q4 revenue of $6.4 billion, marking a 4% year-over-year growth. The company achieved a record annual adjusted operating margin of 5.7% despite macroeconomic challenges. Flex Ltd (NASDAQ:FLEX) generated over $1 billion in free cash flow, exceeding their 80%-plus adjusted free cash flow conversion target for the second consecutive year. The data center business saw significant growth, with revenue increasing by about 50% year-over-year, reaching approximately $4.8 billion. Flex Ltd (NASDAQ:FLEX) executed multiple program ramps, completed key acquisitions, and won two PACE awards in the automotive space, showcasing their operational efficiency and strategic direction.

Negative Points

The company faces continued macroeconomic headwinds, particularly affecting core industrial, renewables, and medical equipment markets. Tariffs remain a concern, adding costs that Flex Ltd (NASDAQ:FLEX) plans to pass through, potentially impacting cash flow timing. There is a potential slowdown in the broader economy, which could affect demand and pose risks to the company's performance. The automotive segment is expected to experience weakness due to tariff-related disruptions affecting customer volumes. Flex Ltd (NASDAQ:FLEX) anticipates a sequential revenue decline in Q1 FY26, with lower fixed cost absorption and margin drag in the automotive business.

Story Continues

Q & A Highlights

Q: What are the key drivers for the strong margin guidance for fiscal '26? A: Kevin Krumm, CFO, explained that the margin improvement is driven by continued growth in the cloud and data center product business, favorable mix impacts from the power business, and growth in the service business. Operational efficiency and productivity improvements across segments also contribute to the strong margin guidance.

Q: How is Flex Ltd. positioned to handle customer demand for manufacturing capacity in the US and Mexico? A: Revathi Advaithi, CEO, stated that Flex has a strong footprint in North America, with available capacity and recent expansions. The company is well-positioned to support customers with regionalization efforts and is focused on helping customers navigate tariff impacts and long-term footprint strategies.

Q: Can you elaborate on the scale advantages in the data center business and how they will play out in the new fiscal year? A: Revathi Advaithi highlighted Flex's vertically integrated capabilities in IT integration and power solutions, including liquid cooling and engineering design. The company's unique ability to combine compute and power solutions differentiates it in the market, supporting strong growth in the data center business.

Q: What is the impact of customer-sourced inventory models on revenue and margins? A: Kevin Krumm noted that while customer-sourced inventory models are not isolated to the cloud business, they are more prevalent there. These models result in a bump in margins, and Flex expects margin growth to continue even without this bump.

Q: How might tariffs affect Flex's margin guidance, and what is the potential impact on demand? A: Kevin Krumm stated that the guidance excludes direct tariff impacts, which would affect revenue and costs at low margins. While tariffs could cause a slight drag on margins, they are not expected to impact operating profit or EPS dollars. Revathi Advaithi added that outside of automotive, no significant demand impact is anticipated from tariffs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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