Celestica Inc. warned yesterday that its financial performance in the current quarter will fall short of expectations because of order reductions from some of its largest customers in the information technology and communications sectors — the two biggest markets the company serves.
The electronics manufacturing services company said sales should range between $2.05-billion (U.S.) and $2.15-billion in the three months ending Sept. 30, down significantly from earlier estimates it provided on July 22 of between $2.25-billion and $2.40-billion.
Adjusted profit will likely amount to between 7 cents and 11 cents a share, down from earlier estimates of 11 cents to 17 cents.
The news caught investors by surprise. In after-hours trading in New York, Celestica stock traded as low as $12.99, down from its close of $14.57., an 18-cent gain on the day.
September has thrown an unexpected twist into analysts' forecasts of an early-stage recovery for Celestica and the rest of the electronics manufacturing services industry.
Many analysts have said that the sector seemed to be starting to rebound, but September usually accounts a disproportionate amount of its business, and it has not been a good month.
x "Virtually every company in their supply base has pre-announced negatively as well.
"So is it that much of a surprise? Probably not," Andrew Huang, an analyst with American Technology Research Inc. in San Francisco, said of Celestica.
Among the Toronto-based company's clients to have issued financial warnings in recent days are the world's largest chip maker, Intel Corp., personal-computer giant Hewlett-Packard Co. and networking equipment manufacturer Cisco Systems Inc.
Cisco Systems and Hewlett-Packard are two of Celestica's largest clients.
Other technology players waving the red flag have included Texas Instruments Inc., Tundra Semiconductor Corp., National Semiconductor Corp. and business software maker Open Text Corp.
Analyst Todd Coupland at CIBC World Markets Inc. in Toronto said he had not been expecting the Celestica warning, but that it is "not out of line with the 'soft summer' comments we've been getting from a number of companies in the IT world.
"I do think it's an end-market issue. I don't think Celestica is losing market share."
Mr. Coupland also said that at the mid-point of the revised guidance, Celestica's third-quarter share profit would be close to what the company reported in the second quarter, on higher revenue.
What this implies, he added, is that cost-cutting moves and other actions taken by the company's new chief executive, Stephen Delaney, "are continuing to play out," although at a slower pace because of the lower revenue.
For the second quarter, Celestica reported revenue of $2.3-billion and a loss of $25.5-million, or 4 cents a share.
It said adjusted net earnings — independent of restructuring costs, amortization of intangible assets, option expenses and several other charges — were $26.7-million, or 10 cents a share.
The electronics manufacturing industry has been clawing its way out of a three-year recession. Celestica embarked on a major restructuring plan early this year after hiring Mr. Delaney in January.
In an interview last month, Mr. Delaney said the company still faced market jitters, but several positive factors were improving prospects, including the introduction of faster networks by the wireless industry and the growing need for corporations to invest in technology products to boost productivity.
Celestica has scheduled a conference call for this morning to discuss the updated guidance. The company is scheduled to release third-quarter results on October 21.
© The Globe and Mail
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