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Celestica: Positives Are Priced In Despite Encouraging Q2 Revenue Growth

Aug. 07, 2018 5:10 PM ETCelestica Inc. (CLS), CLS:CA
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Zen Value Investor


  • Celestica delivered decent revenue growth in Q2 after many quarters lacking growth.
  • Operating profit and the bottom line did not benefit from growth as restructuring and other charges continued.
  • Celestica is priced fairly at best under the assumption of better margins and significantly higher bottom line in 2019.



Celestica (NYSE:CLS) finally delivered some revenue growth in Q2 after a very long period. Unfortunately, operating margin and the bottom line did not benefit from this due to continuing restructuring and transition charges. Though we expect Celestica to continue growing its more profitable ATS business, it is unlikely to create meaningful improvement in its bottom line in 2018. Furthermore, the stock seems to have priced in the possible margin and bottom line improvements which will take place in 2019.

Financial Overview

Let us quickly go over Celestica's long-term financial performance:

Celestica Annual Figures

Celestica Annual Margins


Over the 3-year period from 2014 to 2017, Celestica failed investors with a cumulative revenue growth of only 8.5% from $5631M to $6111M. During this period, gross margin hovered between 6.7% and 7.0% while operating margin averaged 2.4%. Due to plenty of restructuring and other "one-off" costs, Celestica's net margin remained under pressure with an average of 1.8%. Net income remained almost flat at $105M over the 3-year period. In summary, Celestica has been running a low-margin business and delivered no real growth over the past few years.

Celestica Annual Financials


Let us review the company's Q2 18 earnings:

Celestica Quarterly Figures

Celestica Quarterly Margins


Celestica achieved a surprising revenue growth of 8.8% yoy with revenues rising from $1559M in Q2 17 to $1695M in Q2 18. However, gross profit declined by 4.8% yoy and gross margin contracted by 80 bps with respect to last year and came down to 6.0%. Gross margin has been on a consistent downtrend over the same period. Similarly, operating margin shrunk to 1.5% from 2.6% a year ago with an operating income of $26M. Finally, the company ended with $16.1M net income with a net margin of only 0.9%. Over the last three quarters, Celestica has been operating with a steady operating margin around 1.5% and a net margin of 0.9%. Until there is some material improvement in profitability, investors would do well to assume that the current tight

This article was written by

Zen Value Investor profile picture
I am an investor whose main influence is Benjamin Graham and his disciples. I am always on the lookout for investment opportunities with attractive valuations. I have a tendency to prefer investing in companies with strong cash flows and a deleveraging story.

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