Why Flextronics Shares Fell
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Flextronics fell more than 12% during intraday trading Wednesday, after the supply-chain solutions company first posted solid fiscal second-quarter earnings results but followed up with weak forward guidance.
So what: Quarterly net sales rose 3.8% to $6.41 billion, which translated to adjusted earnings of $0.22 per share. For reference, analysts were looking for sales of only $6.28 billion, and adjusted earnings of $0.21 per share.
However, Flextronics also stated that for the quarter ending Dec. 31, revenue should be in the range of $6.5 billion to $6.9 billion, while adjusted earnings per share are expected to be in the range of $0.21 to $0.25. The midpoint of both ranges falls short of average estimates calling for sales of $6.79 billion and earnings of $0.25 per share.
Now what: While the top end of the company's guidance still leaves room to meet those expectations going forward, CEO Michael McNamara elaborated on the subsequent earnings conference call, saying the company is currently "seeing some near-term pressure from the broader demand environment, [which is] resulting in some unfavorable mix changes and some slippage in new product ramps."
Even so, McNamara was quick to assert the current weakness shouldn't be viewed as a negative reflection of the viability of Flextronics' platform.
That's fair enough, but does little to console our fickle market, which is undoubtedly noticing that shares of Flextronics still look pricey at more than 25 times last year's earnings. However, after today's drop, shares are also trading at a rock-bottom 7.5 times next year's estimates, so patient investors who don't mind taking advantage of the pullback could stand to be rewarded handsomely down the road.
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