Singapore-based Flextronics International Ltd. (FLEX) said this week that its third quarter loss widened as a result of a large one-time goodwill impairment charge.
The Electronics Manufacturing Services (EMS) provider said it lost $6.02 billion in the quarter, or $7.43 per share, after it booked a $5.9 billion non-cash charge to write off the entire carrying value of its goodwill and other one-time items.
Even excluding the goodwill write-off and the other one-time items, adjusted earnings of 16 cents per share came in shy of analyst’s estimates of earnings of 19 cents per share according to Thomson Reuters. Sales fell 10 percent from the year ago quarter to $8.15 billion.
On top of the earnings miss, Flextronics said it expects revenue of $5.5 to $6.5 billion in the current quarter and adjusted earnings in the 2 cent to 7 cent per share range. Analysts were expecting the company to have adjusted earnings of 15 cents per share on revenue of $7.3 billion.
Flextronics helps customers design, build, ship, and service electronics products and has facilities in 30 countries on four continents.
“Flextronics was hit especially hard by lower demand from cell phone manufacturers, as thriftier consumers bought fewer gadgets during the holiday season,” said Chief Financial Officer Paul Read in an interview.
That the slowdown is hitting its customers hard is almost an understatement. One of the charges Flextronics recognized during the third quarter was a distressed customer charge of $145 million related to the Chapter 11 bankruptcy filing for Nortel Networks.
Flextronics supplies nearly 75 percent of the equipment for Nortel. Mr. Read added, “Demand is generally weak across all market segments, (with) some being hit harder than others.”
Flextronics has made a push in recent years to diversify its revenue base and now supplies equipment to makers of computers, medical equipment, appliances, cell phones, consumer electronics and automotive equipment.
The problem is that one can look at that list and you can rattle off any number of companies in each category that are currently in trouble.
Flextronics’ Chief Executive Mike McNamara said on the company’s conference call that customers “accelerated” their demand pullback in the third quarter, a trend that is continuing in the fourth quarter.
In stating the obvious the company said controlling costs and making sure it has enough cash to get it through the recession are management’s top priorities. It ended the quarter with $3.6 billion of liquidity and also reduced its inventories by $1 billion during the quarter.
On the positive side Flextronics has generated $658 million in free cash flow year-to-date and expects to further improve working capital during this downturn.
Mr. McNamara said he believes the company’s competitive strengths such as its low-cost industrial park concept, vertically integrated end-to-end solutions, significant scale, customer and end-market diversification and customer relationships will ultimately enhance Flextronics’ competitive position.
Sounds like management wishful thinking if you ask me.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
