New reporting segments and recent acquisition

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CFO Kevin Krumm said Flex will begin reporting results in three segments: Regulated Manufacturing Solutions (RMS), Integrated Technology Solutions (ITS), and CPI. RMS will include industrial, automotive, and healthcare. ITS will include communications and lifestyle businesses. CPI consolidates data center power and cloud businesses, which Krumm said will be reported with segment-level disclosures until the transaction closes.

Advaithi also highlighted the closing of Flex’s acquisition of Electrical Power Products (EP²), which she said strengthens the company’s portfolio with “utility-grade specification-driven solutions for grid modernization and electrification.” She said the deal increases exposure to “long cycle margin accretive programs that support grid resiliency.”

Fourth-quarter and full-year fiscal 2026 results

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Krumm reported fourth-quarter revenue of $7.5 billion, up 17% year-over-year. Adjusted gross profit was $737 million and adjusted gross margin rose to a company record 9.9%, up 50 basis points. Adjusted operating profit was $500 million, and adjusted operating margin was a record 6.7%, up 50 basis points. Adjusted EPS rose 27% to $0.93.

By segment for the quarter:

• RMS:Revenue of $2.7 billion, up 13%; adjusted operating income of $180 million; operating margin of 6.6%, up 80 basis points.

• ITS:Revenue of $2.9 billion, up 13%; adjusted operating income of $147 million; operating margin of 5%, unchanged.

• CPI:Revenue of $1.8 billion, up 31%; adjusted operating income of $182 million; operating margin of 9.9%, “largely in line” with last year as favorable power mix was offset by infrastructure investment and cloud ramp costs.

For fiscal 2026, Flex reported revenue of $27.9 billion, up 8%, with growth in cloud, power, and industrial offset by “persistent softness” in consumer-related end markets. Adjusted gross margin improved 70 basis points to 9.5%. Adjusted operating income rose 21% to $1.8 billion, and adjusted operating margin increased 70 basis points to 6.3%. Adjusted EPS was $3.30, up 25%, which Krumm attributed to higher operating income and share repurchases.

Full-year segment performance included CPI revenue of $6.6 billion, up 38% and above the company’s 35% target. CPI adjusted operating margin was 9.2%, down 100 basis points, reflecting infrastructure investments and cloud ramp costs. Krumm said the company expects to “recoup the full 100 basis points” in fiscal 2027 and expand another 50 to 100 basis points in fiscal 2028 as it grows into those investments.

Cash flow, buybacks, and elevated fiscal 2027 CapEx

Flex posted fourth-quarter free cash flow of $212 million and approximately $1.1 billion for the full year. Krumm said inventory rose 5% sequentially and 15% year-over-year, “mostly supporting” CPI and RMS growth, while inventory net of working capital advances was 55 days, down one day from the prior year.

Fourth-quarter net CapEx was $201 million, with full-year CapEx of $625 million, or about 2.2% of revenue. The company repurchased $200 million of stock in the quarter (about 3 million shares) and $944 million for the year (about 19 million shares).

Looking ahead, Krumm guided fiscal 2027 CapEx to $1.4 billion to $1.6 billion, describing the spending as tied to “foundational” investments in power and cooling infrastructure for data center customers. Advaithi said capital deployment for recent projects is already underway and “will remain elevated through FY 2027,” but she added the increase should be “unique to fiscal year 2027,” with CapEx expected to normalize in fiscal 2028.

Fiscal 2027 outlook and CPI growth targets

For fiscal 2027, Krumm guided revenue to $32.3 billion to $33.8 billion, up 18% at the midpoint. Adjusted operating margin is expected at 7% to 7.1%, about 80 basis points higher, driven “in large part” by recouping fiscal 2026 CPI investments. Flex expects an adjusted tax rate of 21% and adjusted EPS of $4.21 to $4.51, up 32% at the midpoint. Krumm also guided to free cash flow conversion of about 60%, excluding spin-related costs.

Management reiterated CPI growth targets of 65% to 75% in fiscal 2027 and “over 80%” in fiscal 2028. Advaithi and Krumm cited significant customer awards, including a “multi-year contract with Google,” alongside other hyperscalers, colocation providers, and “neoclouds.” Advaithi said CPI’s growth is “well-distributed between power and cloud” and across customers, adding that the company is “booked out in terms of capacity and backlog for the next two years.”

For the first quarter of fiscal 2027, Flex guided revenue to $7.35 billion to $7.65 billion and adjusted operating income of $469 million to $499 million. Adjusted EPS is expected between $0.86 and $0.92.

In Q&A, Krumm said power margins are higher than cloud margins within CPI and are expected to remain higher. Hartung said Flex will continue emphasizing “high-quality earnings that maximize cash generation,” with margin progress supported by productivity initiatives, mix optimization, and “AI-enabled technologies” over time, while continuing to reposition away from lower-value lifestyle markets.

About Flex (NASDAQ:FLEX)

Flex (NASDAQ: FLEX), formerly known as Flextronics, is a global provider of electronics manufacturing services (EMS) and original design manufacturing (ODM). The company offers end-to-end product lifecycle solutions including product design and engineering, prototyping, volume manufacturing, testing, and aftermarket services. Its offerings extend into supply chain management, component sourcing, logistics and distribution, and advanced manufacturing capabilities such as automation and digital manufacturing to support customers from concept through end-of-life.

Flex serves a broad range of industries, including automotive, healthcare, industrial, communications, and consumer electronics, working with original equipment manufacturers (OEMs) and technology companies to accelerate time to market and manage complex supply chains.

The article " Flex Q4 Earnings Call Highlights " was originally published by MarketBeat.