Citi: Flextronics International Reports Stellar Top-Line Results

Flextronics International FLEX reported rev/EPS of $7.83b /$0.25 above the company's original guidance of $7.5-7.7b/$0.23-0.25 & above street expectations for $7.6b/$0.24. Operating margins of 2.97% were only up slightly from 2.9% from last quarter, despite a much stronger reported sales rate. FLEX guided March rev/EPS in the range of $7.1-$7.4b/$0.21-$0.23, above Street est. of $6.96b/$0.21. Positives include: FLEX boasted an impressive top line sales number, with doubledigit sequential growth in Mobile & Consumer Digital. In its components business, management believes FLEX will be break even exiting the March quarter with efficiency improvements & continued volume growth. Given FLEX's established position in the smartphone industry, FLEX appears well positioned to gain share in an infant but quickly growing tablet market. Negatives include Unlike Jabil JBL, one of Flextronics major competitors, FLEX did not show significant Q/Q margin or EPS improvement on the higher sales levels. SG&A as a % of sales remained constant and operating margins were only up slightly q/q and the FLEX EPS beat was minor. This is a disconnect between JBL & FLEX. While Flextronics blames/cites ramping projects & product mix, Citi believes investors may be disappointed if FLEX can't improve margins in the near term to drive stronger EPS. Citi has a $9.50 PT and Hold rating on FLEX FLEX closed Thursday at $8.22