CLS reports. These two paragraphs sum up a lot of the problems of ECM companies:
"The management team is basically making the best of the cards that they've been dealt. They've got four or five main customers, and those customers' results flow directly to Celestica."
Company executives told analysts capacity utilization was about 40 percent in the quarter, down from about 45 percent in the second quarter. Operating margins fell to 3.0 percent from 3.6 percent in the second quarter.
Capacity utilization way down, their margins are down, they depend on just a few companies. My sense is that CLS may be worse than others in some ways (that is, fewer customers account for more of their revenues), but everyone faces these issues to some extent.
Celestica reports loss after charge, sees weakness
Wednesday October 16, 7:09 pm ET
By Jeffrey Hodgson
(Adds detail from conference call, further analyst comment. In U.S. dollars unless
noted)
TORONTO, Oct 16 (Reuters) - Celestica Inc. (Toronto:CLS.TO - News; NYSE:CLS -
News), the world's No. 4 contract electronics manufacturer, reported a third-quarter
loss and weaker sales on Wednesday, as it took a restructuring charge in response to
the tech sector downturn.
The
Toronto-based
firm, which
makes
workstations,
computers and
other equipment
for companies
such as Sun
Microsystems Inc.
(NasdaqNM:SUNW
- News) and
International
Business
Machines Corp.
(NYSE:IBM -
News), also
warned that
revenues and
earnings will
likely fall further
in the fourth
quarter, missing
analysts' current
expectations.
"We typically have an uptick in the fourth quarter. Obviously our guidance doesn't
show that, and that's probably all I can say. It's a difficult tech environment," Chief
Executive Eugene Polistuk told Reuters in a telephone interview.
"We haven't seen any major rebound, but I'm sure when it comes, we won't know it
until it's on top of us."
Celestica shares fell sharply in after-hours trade on Instinet, losing $2 from its close in
New York to $10.
The firm reported a loss of $91 million, or 40 cents a share, for the quarter ended
Sept. 30, compared with a loss of $39 million, or 20 cents per share, a year earlier.
The figures included a $136 million charge to cut jobs and reduce capacity, part of
a $300 million to $375 million restructuring announced in July.
Adjusted earnings, excluding the amortization of intangible assets, integration costs
and one-time charges, fell to $51 million, or 20 cents a share, from $65 million, or 27
cents a share.
Twenty-two analysts surveyed by Thomson First Call had expected, on average,
adjusted earnings of 19 cents, with estimates ranging from 17 cents to 21 cents.
SEGMENT WEAKNESS
"The weakness was in a few customers in both communications and IT (information
technology) segments," Chief Financial Office Anthony Puppi told analysts in a
conference call.
Revenues fell to $1.96 billion from $2.2 billion, just below analyst expectations of
$1.97 billion.
"Results were in line with the lowered guidance, straight down the middle. I think the
cash generation... that looks pretty impressive," said David Miller, an analyst with
Kaufman Brothers.
"I think people are going to be disappointed. The December quarter is usually
seasonally strong and to see a sequential decline in sales and possibly in EPS
(earnings per share), that's disappointing."
The company said it expects fourth-quarter sales to be in the range of $1.7 billion to
$1.9 billion and adjusted earnings to be between 13 cents and 21 cents a share.
Analysts had expected the company to report fourth-quarter adjusted earnings of 23
cents a share on sales of $2.06 billion.
"I would think that most people would be taking down their fourth-quarter expectations. I think the stock is going to trade down to reflect the reduction in people's outlooks," said CIBC World Markets Todd Coupland, who has the stock rated "outperform".
"The management team is basically making the best of the cards that they've been dealt. They've got four or five main customers, and those customers' results flow directly to Celestica."
Company executives told analysts capacity utilization was about 40 percent in the quarter, down from about 45 percent in the second quarter. Operating margins fell to 3.0 percent from 3.6 percent in the second quarter.
DEBT BUYBACK
Celestica's debt-to-capital ratio declined to 18 percent from 21 percent in the second
quarter, and its cash balance at the end of the quarter was a record $1.85 billion, up
from the second quarter's $1.7 billion.
During the quarter, the company redeemed all of its $130 million of senior
subordinated notes due 2006. It also repurchased 1 million subordinate voting shares
at an average price of $17.08 each and paid $48.3 million to repurchase liquid yield
option notes with a face value of $110.4 million.
Investors unloaded shares of the company ahead of the results. The stock closed
down C$2.72, or 12.5 percent, at C$19 on the Toronto Stock Exchange. In New York,
it closed off $1.70, or 12.4 percent, at $12.00.
Last Month Celestica issued its first earnings warning since going public in 1998,
blaming slack demand at some of its largest customers.
At that time it chopped its third-quarter earnings estimate to between 18 cents and 22
cents a share from a previous forecast of between 26 cents and 33 cents.
($1=$1.58 Canadian) |
