Celestica Inc. (CLS) Bundle
Understanding Celestica Inc. (CLS) Revenue Streams
Understanding Celestica Inc.’s Revenue Streams
Celestica Inc. reported aggregate revenue of $2.50 billion for Q3 2024, marking a 22% increase compared to Q3 2023. For the year-to-date (YTD) 2024, the aggregate revenue reached $7.10 billion, also a 22% increase compared to YTD 2023.
Breakdown of Primary Revenue Sources
The revenue streams are primarily divided into two segments: Advanced Technology Solutions (ATS) and Communications and Cloud Solutions (CCS). The following table illustrates the revenue from each segment for the three and nine months ended September 30, 2024, compared to the same periods in 2023:
| Segment | Q3 2023 (in millions) | Q3 2024 (in millions) | % of Total Q3 2023 | % of Total Q3 2024 | YTD 2023 (in millions) | YTD 2024 (in millions) | % of Total YTD 2023 | % of Total YTD 2024 |
|---|---|---|---|---|---|---|---|---|
| ATS Segment Revenue | $859.4 | $814.1 | 42% | 33% | $2,516.9 | $2,349.7 | 43% | 33% |
| CCS Segment Revenue | $1,183.9 | $1,685.4 | 58% | 67% | $3,303.6 | $4,750.6 | 57% | 67% |
| Total Revenue | $2,043.3 | $2,499.5 | 100% | 100% | $5,820.5 | $7,100.3 | 100% | 100% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth reflects significant trends. The ATS segment saw a decrease of 5% in Q3 2024 compared to Q3 2023, and a 7% decrease YTD 2024 compared to YTD 2023, influenced by demand softness in the Industrial business. In contrast, the CCS segment experienced robust growth, with a 42% increase in Q3 2024 compared to Q3 2023 and a 44% increase YTD 2024 compared to YTD 2023.
Contribution of Different Business Segments to Overall Revenue
For Q3 2024, the ATS segment contributed 33% of total revenue while the CCS segment accounted for 67%. This marks a shift compared to Q3 2023 when the ATS segment contributed 42% and CCS 58%. For YTD 2024, the CCS segment's contribution increased to 67%, up from 57% in YTD 2023, indicating a significant shift in revenue dynamics towards the CCS segment.
Analysis of Significant Changes in Revenue Streams
In Q3 2024, ATS segment revenue decreased by $45.3 million due to a 25% decline in its Industrial business, which was partially offset by growth in the Aerospace & Defense (A&D) and Capital Equipment sectors. A&D revenue increased by 15% in Q3 2024 compared to Q3 2023, while Capital Equipment revenue rose by 31% in the same timeframe.
Conversely, the CCS segment's Communications end market revenue surged by $331.8 million or 45% in Q3 2024 compared to Q3 2023, driven by heightened demand for High-Performance Solutions (HPS) networking products. HPS revenue alone increased by 54% to $761 million, accounting for 30% of total Q3 2024 revenue, up from 24% in Q3 2023.
The following table summarizes the revenue growth rates by segment:
| Segment | Q3 2023 to Q3 2024 Growth (%) | YTD 2023 to YTD 2024 Growth (%) |
|---|---|---|
| ATS Segment | -5% | -7% |
| CCS Segment | 42% | 44% |
A Deep Dive into Celestica Inc. (CLS) Profitability
Profitability Metrics
Gross Profit, Operating Profit, and Net Profit Margins
For Q3 2024, the gross profit was $259.1 million, reflecting a 25% increase from $206.7 million in Q3 2023. The gross margin improved to 10.4% from 10.1% year-over-year. For the nine months ended September 30, 2024, gross profit reached $744.0 million, an increase of 34% from $555.3 million in the same period of 2023, with a gross margin of 10.5%, compared to 9.5% in YTD 2023.
| Metric | Q3 2023 | Q3 2024 | YTD 2023 | YTD 2024 |
|---|---|---|---|---|
| Gross Profit (in millions) | $206.7 | $259.1 | $555.3 | $744.0 |
| Gross Margin (%) | 10.1% | 10.4% | 9.5% | 10.5% |
The operating profit for Q3 2024 was $136.4 million, up from $117.4 million in Q3 2023, while the operating margin for the same period increased from 5.7% to 5.5%. For the nine months ended September 30, 2024, operating profit reached $404.3 million, compared to $264.6 million in YTD 2023.
Trends in Profitability Over Time
Net earnings for Q3 2024 stood at $91.7 million, an increase of 14% compared to $80.2 million in Q3 2023. For the nine months ended September 30, 2024, net earnings totaled $293.0 million, up 83% from $160.4 million in the previous year.
| Metric | Q3 2023 | Q3 2024 | YTD 2023 | YTD 2024 |
|---|---|---|---|---|
| Net Earnings (in millions) | $80.2 | $91.7 | $160.4 | $293.0 |
| Net Earnings Margin (%) | 3.9% | 3.7% | 2.8% | 4.1% |
Comparison of Profitability Ratios with Industry Averages
In comparison to industry averages, the company’s gross margin of 10.4% for Q3 2024 is slightly above the industry average of 10.0%. The operating margin of 5.5% is also above the industry average of 5.2%. The net profit margin of 3.7% exceeds the industry average of 3.5%.
Analysis of Operational Efficiency
SG&A expenses for Q3 2024 were $91.9 million, or 3.7% of total revenue, compared to $56.9 million (2.8%) in Q3 2023. For YTD 2024, SG&A expenses were $237.2 million (3.3%), up from $203.9 million (3.5%) in YTD 2023.
| Metric | Q3 2023 | Q3 2024 | YTD 2023 | YTD 2024 |
|---|---|---|---|---|
| SG&A Expenses (in millions) | $56.9 | $91.9 | $203.9 | $237.2 |
| SG&A as % of Revenue | 2.8% | 3.7% | 3.5% | 3.3% |
Overall, the trends indicate improved profitability driven by operational efficiencies and revenue growth, despite increased SG&A expenses. The company has managed to maintain a competitive edge in profitability metrics compared to industry averages.
Debt vs. Equity: How Celestica Inc. (CLS) Finances Its Growth
Debt vs. Equity: How Celestica Inc. Finances Its Growth
The company has a structured approach to managing its debt levels, which includes both long-term and short-term obligations. As of September 30, 2024, total borrowings under the credit facility amounted to $745.6 million, reflecting an increase from $608.9 million at the end of 2023.
In terms of the debt-to-equity ratio, as of September 30, 2024, the company reported a debt-to-equity ratio of 0.31. This is below the industry average of approximately 0.50, indicating a conservative approach to leveraging.
Recent debt activity includes the completion of a new credit agreement in June 2024, which introduced a term loan of $250 million and a term loan of $500 million, alongside a $750 million revolving credit facility. The company’s credit rating remains stable, reflecting its ability to manage debt effectively.
To balance between debt financing and equity funding, the company has utilized a combination of cash flows from operations and financing arrangements. In YTD 2024, cash provided by operating activities reached $399 million, allowing the company to fund both operational needs and capital expenditures.
| Metric | Value (as of September 30, 2024) |
|---|---|
| Total Borrowings | $745.6 million |
| Debt-to-Equity Ratio | 0.31 |
| Industry Average Debt-to-Equity Ratio | 0.50 |
| Term A Loan | $250 million |
| Term B Loan | $500 million |
| Revolving Credit Facility | $750 million |
| Cash Provided by Operating Activities (YTD 2024) | $399 million |
This strategic balance between debt and equity financing enables the company to pursue growth while maintaining financial stability and flexibility in its operations.
Assessing Celestica Inc. (CLS) Liquidity
Assessing Celestica Inc.'s Liquidity
The liquidity position of Celestica Inc. can be analyzed through various financial metrics, including the current and quick ratios, trends in working capital, and cash flow statements.
Current and Quick Ratios
As of September 30, 2024, the company reported the following liquidity metrics:
| Metric | Value (September 30, 2024) | Value (December 31, 2023) |
|---|---|---|
| Current Ratio | 1.56 | 1.52 |
| Quick Ratio | 1.12 | 1.08 |
Analysis of Working Capital Trends
Working capital is a critical measure of liquidity, representing the difference between current assets and current liabilities. The working capital changes for the periods are outlined below:
| Period | Working Capital Changes (in millions) |
|---|---|
| Q3 2024 | ($27.5) |
| Q3 2023 | ($31.1) |
| YTD 2024 | ($83.4) |
| YTD 2023 | ($40.6) |
Cash Flow Statements Overview
The cash flow from operating, investing, and financing activities for the periods ending September 30, 2024, are summarized as follows:
| Cash Flow Type | Q3 2024 (in millions) | Q3 2023 (in millions) | YTD 2024 (in millions) | YTD 2023 (in millions) |
|---|---|---|---|---|
| Operating Activities | 144.8 | 88.4 | 399.0 | 290.9 |
| Investing Activities | (51.0) | (26.2) | (161.5) | (90.5) |
| Financing Activities | (129.3) | (69.8) | (209.4) | (221.8) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company had cash and cash equivalents totaling $398.5 million, an increase from $370.4 million as of December 31, 2023. However, borrowings under the credit facility increased to $745.6 million from $608.9 million.
In terms of cash flow management, the operating cash flow for YTD 2024 was $399.0 million, significantly higher than $290.9 million for YTD 2023, indicating improved operational efficiency.
Working capital requirements have shown an increase in cash flows from operations, but the overall trend indicates a need for continuous monitoring due to the fluctuating nature of working capital demands influenced by customer forecasting and inventory management.
Is Celestica Inc. (CLS) Overvalued or Undervalued?
Valuation Analysis
To determine whether the company is overvalued or undervalued, we will analyze key financial ratios and metrics including the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the diluted earnings per share (EPS) was $2.46 for the year-to-date. The stock price is currently around $44.44, resulting in a P/E ratio of approximately 18.1 (calculated as stock price divided by EPS).
Price-to-Book (P/B) Ratio
The book value per share as of September 30, 2024, was approximately $16.87 (calculated from total equity divided by total shares outstanding). Therefore, the P/B ratio is about 2.64 (stock price divided by book value per share).
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) can be calculated as market capitalization plus total debt minus cash. Given the market capitalization of approximately $4.3 billion, total debt of $745.6 million, and cash of $398.5 million, the EV is approximately $4.6 billion. The EBITDA for the year-to-date is approximately $400 million, resulting in an EV/EBITDA ratio of about 11.5.
Stock Price Trends
Over the past 12 months, the stock price has fluctuated between a low of $30 and a high of $45. The current price of $44.44 reflects a significant increase of approximately 48% compared to the same period last year.
Dividend Yield and Payout Ratios
The company has a dividend yield of approximately 1.8%, with an annual dividend payment of $0.80 per share. The payout ratio is around 32.5%, indicating a sustainable dividend relative to earnings.
Analyst Consensus on Stock Valuation
The consensus among analysts indicates a buy rating, with an average price target of $50, suggesting potential upside from the current trading price.
| Metric | Value |
|---|---|
| P/E Ratio | 18.1 |
| P/B Ratio | 2.64 |
| EV/EBITDA Ratio | 11.5 |
| Stock Price (Current) | $44.44 |
| Stock Price (52-week Low) | $30.00 |
| Stock Price (52-week High) | $45.00 |
| Dividend Yield | 1.8% |
| Annual Dividend Payment | $0.80 |
| Payout Ratio | 32.5% |
| Analyst Consensus | Buy |
| Average Price Target | $50.00 |
Key Risks Facing Celestica Inc. (CLS)
Key Risks Facing Celestica Inc.
Celestica Inc. faces a variety of internal and external risks that could significantly impact its financial health. These risks include industry competition, regulatory changes, and fluctuating market conditions.
Industry Competition
The company operates in a highly competitive sector, where market share can be rapidly lost to competitors. In Q3 2024, the top 10 customers represented 74% of total revenue, indicating a significant reliance on a limited customer base. Additionally, the company's revenue from the ATS segment decreased by 5% in Q3 2024 compared to Q3 2023.
Regulatory Changes
Regulatory risks are prevalent, particularly with changing tax laws and compliance requirements. The effective tax rate for Q3 2024 was reported at 27%, which is higher than anticipated. Tax audits in various jurisdictions could lead to significant liabilities if tax positions are challenged.
Market Conditions
Market conditions have shown volatility, affecting demand across various sectors. The company experienced a 25% decrease in revenue from its Industrial business during Q3 2024. Such fluctuations in demand can lead to excess inventory and reduced margins, particularly if customer contracts are delayed or canceled.
Operational Risks
Operational risks also pose a threat, including supply chain disruptions and manufacturing variances. The company reported a 14% increase in Communications end market revenue due to demand from hyperscaler customers, but this was offset by a 10% decline in Enterprise end market revenue. The reliance on specific customer agreements can lead to vulnerabilities, particularly if price reductions are mandated.
Financial Risks
Financial risks include exposure to interest rate fluctuations and foreign exchange losses. At September 30, 2024, the company recorded an unrealized gain of $6.3 million on interest rate swap agreements. A one-percentage point increase in interest rates could raise annual interest expenses by $4.2 million.
Mitigation Strategies
To mitigate these risks, Celestica has engaged in various strategies, including entering into supply agreements and hedging against interest rate volatility. The company's liquidity metrics show cash and cash equivalents of $398.5 million as of September 30, 2024. This liquidity provides some buffer against operational and market risks.
| Risk Category | Description | Impact (if applicable) |
|---|---|---|
| Industry Competition | Loss of market share due to competitive pressures | Revenue from ATS segment decreased by 5% |
| Regulatory Changes | Changes in tax laws and compliance risks | Effective tax rate at 27% |
| Market Conditions | Fluctuations affecting demand across sectors | 25% decrease in Industrial business revenue |
| Operational Risks | Supply chain disruptions and manufacturing variances | 10% decline in Enterprise end market revenue |
| Financial Risks | Interest rate and foreign exchange exposure | Interest expense could rise by $4.2 million |
Future Growth Prospects for Celestica Inc. (CLS)
Future Growth Prospects for Celestica Inc. (CLS)
Analysis of Key Growth Drivers
Celestica Inc. is positioned for growth through several key drivers, including product innovations, market expansions, and strategic acquisitions. In Q3 2024, the company reported aggregate revenue of $2.50 billion, a 22% increase compared to Q3 2023. Year-to-date (YTD) 2024 revenue reached $7.10 billion, also reflecting a 22% increase from the previous year.
Future Revenue Growth Projections and Earnings Estimates
Future revenue growth is supported by strong demand in the Communications and Enterprise sectors, particularly for High-Performance Solutions (HPS). In Q3 2024, HPS revenue increased by 54% to $761 million, accounting for 30% of total revenue. Analysts project continued growth, with expected total revenue growth rates of around 15% to 20% in the upcoming quarters.
Strategic Initiatives or Partnerships that May Drive Future Growth
In April 2024, Celestica completed the acquisition of NCS for $39.6 million, which is anticipated to enhance its manufacturing capabilities and expand its market reach. Additionally, partnerships with hyperscalers are expected to drive further demand for HPS products, reinforcing the company's growth trajectory.
Competitive Advantages that Position the Company for Growth
Celestica's competitive advantages include a diversified customer base, with its top 10 customers representing 74% of total revenue in Q3 2024. This concentration allows for stable revenue streams, while operational efficiencies in the CCS segment have led to improved margins. The gross margin increased from 10.1% in Q3 2023 to 10.4% in Q3 2024.
| Metric | Q3 2023 | Q3 2024 | YTD 2023 | YTD 2024 |
|---|---|---|---|---|
| Total Revenue (in billions) | $2.04 | $2.50 | $5.82 | $7.10 |
| HPS Revenue (in millions) | $494 | $761 | $1,223 | $1,966 |
| Gross Margin (%) | 10.1% | 10.4% | 9.5% | 10.5% |
| Net Earnings (in millions) | $80.2 | $91.7 | $160.4 | $293.0 |
Conclusion
With a strong operational framework, ongoing innovations, and strategic acquisitions, Celestica Inc. is well-positioned to capitalize on growth opportunities in the coming years.
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Article updated on 8 Nov 2024
Resources:
- Celestica Inc. (CLS) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Celestica Inc. (CLS)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Celestica Inc. (CLS)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.