• Revenue: $6.6 billion, up 2% year over year.
• Operating Margin: 6.1%, a record high for the company.
• EPS (Earnings Per Share): $0.77, a 43% increase year over year.
• Gross Profit: $610 million, a new quarterly record.
• Gross Margin: 9.3%, up 150 basis points.
• Adjusted Operating Income: $399 million, up 120 basis points year over year.
• Free Cash Flow: $306 million for the quarter.
• Inventory Reduction: Net inventory down 4% sequentially and 20% year over year.
• Data Center Business Growth: 45% year over year.
• Stock Repurchase: $200 million in Q3, totaling over $950 million fiscal year-to-date.
• Cash Balance: Approximately $2.3 billion at the end of Q3.
• Full-Year Revenue Guidance: $25.4 billion to $25.8 billion.
• Full-Year Adjusted EPS Guidance: $2.57 to $2.65 per share.

• Warning! GuruFocus has detected 9 Warning Sign with FLEX.

Release Date: January 29, 2025

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

Positive Points

• Flex Ltd (NASDAQ:FLEX) achieved a record quarterly operating margin of 6.1% and EPS of $0.77, marking the first time operating margins exceeded 6%.
• The company reported a 45% year-over-year growth in its data center business, driven by strong demand in hyperscale cloud integration and AI-driven cloud expansion.
• Flex Ltd (NASDAQ:FLEX) successfully closed acquisitions of JetCool and Crown Systems, enhancing its data center portfolio with advanced cooling and power capabilities.
• The company joined the S&P MidCap 400, reflecting its growth and market presence.
• Flex Ltd (NASDAQ:FLEX) demonstrated strong cash flow management, with $306 million in free cash flow for the quarter and a year-to-date total of $757 million, positioning it well to meet its full-year target of $800 million-plus.

Negative Points

• The automotive segment faced challenges due to a weak macro environment, impacting overall revenue growth.
• There is uncertainty regarding the impact of tariffs and potential broader macroeconomic effects on slowing volumes, which Flex Ltd (NASDAQ:FLEX) is closely monitoring.
• The company anticipates fluctuations in operating margins in the coming quarters, despite achieving a 6% margin this quarter.
• Flex Ltd (NASDAQ:FLEX) is experiencing softer near-term trends in the automotive sector, which could affect future performance.
• The company faces labor constraints in the US, which could impact its ability to expand manufacturing operations domestically.

Q & A Highlights

Q: Can you provide insights into the pace of cloud growth and any changes in AI infrastructure build-out? A: Revathi Advaithi, CEO: We expect over 40% growth in the next quarter and a long-term CAGR of 20% for data centers. We haven't heard of any changes from customers regarding AI infrastructure build-out. The transition towards dense compute and power needs remains strong, and we are optimistic about continued growth.

Q: How did Flex achieve the 6% operating margin earlier than expected, and can it be sustained? A: Revathi Advaithi, CEO: The margin improvement is due to mix and efficiency across all business units. While we expect to maintain 6% in the next quarter, there may be fluctuations. We will provide FY26 guidance soon, but our focus remains on mix and efficiency.

Q: How does Flex plan to adapt to potential shifts in manufacturing to the US due to tariffs and policies? A: Revathi Advaithi, CEO: Flex has been efficiently moving manufacturing globally for years. Space is not a constraint in the US, but labor availability is. We are optimistic about reducing landed costs through automation and efficiency improvements.

Q: What is the growth strategy for Flex's data center business, especially with the addition of Crown Technologies? A: Revathi Advaithi, CEO: We have a diversified customer base in data centers, covering hyperscalers and colos. Growth will come from existing customers and portfolio expansion. Crown Technologies enhances our power capabilities, allowing us to participate in power pods and utility business in the US.

Q: How does Flex view capital returns to shareholders, and is a dividend being considered? A: Kevin Krumm, CFO: Our capital allocation priorities focus on balancing returns with business investments. We prioritize organic growth, share repurchases, and M&A for technology and capability additions. A dividend is a future consideration, but current priorities remain.

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