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Celestica swings to profit on cost cutting

24/07/08

By Wojtek Dabrowski

TORONTO (Reuters) - Contract electronics maker Celestica Inc on Thursday said it swung to a second-quarter profit as further cost cuts offset slumping demand for its products.

Celestica, whose customers have included computer giants IBM and Hewlett-Packard , said it earned $39.8 million, or 17 cents a share, in the three months ended June 30. That was up from a loss of $19.2 million, or 8 cents a share, in the same period a year earlier.

Revenue fell to $1.88 billion from $1.94 billion in the quarter, and adjusted earnings were 17 cents per share compared to 2 cents a share a year earlier. The report was in line with the outlook the company provided in April.

The company, which also makes consumer electronics such as Microsoft Corp's Xbox 360 videogame console, has struggled to right itself as demand slumps for the telecommunications and information-technology products it makes under contract. It has taken on new consumer business and aggressively cut costs to try mitigate those declines.

In the second quarter, Celestica said it reduced its cost of sales to $1.75 billion from $1.85 billion a year earlier.

"The company is certainly executing very well in admittedly a pretty choppy market," said Duncan Stewart, president of Duncan Stewart Asset Management in Toronto.

"Given the turbulence out there and the raft of other bad news coming out of the technology market, Celestica is actually doing a pretty good job."

Investors have remained hopeful Celestica can turn around its fortunes and its shares have risen more than 55 percent since January on the Toronto Stock Exchange.

Even so, demand in its telecom and information-technology businesses will remain weak in the third quarter and beyond, Chief Executive Craig Muhlhauser told analysts in a conference call.

"However, each of our segments is still expected to grow or remain flat and new program ramps -- primarily in the consumer segment -- are helping to offset some of these weaknesses," he said.

For the third quarter, the Toronto-based company said it expects revenue of between $1.9 billion and $2.1 billion and adjusted earnings of between 17 cents and 23 cents per share.

That compares with analyst expectations of $2.1 billion for revenue and earnings of 20 cents per share before one-time items, according to Reuters Estimates.

The company has laid off close to 9,000 employees since 2005 as it worked to rein in its cost base in the face of falling demand in the last several years. It has said it estimates "additional restructuring charges" of between $50 million and $75 million, which it will record this year and in 2009.

Celestica said its second-quarter free cash flow was $54 million, giving it a cash balance of $1.2 billion.

Celestica's shares closed higher by 22 Canadian cents, or 2.6 percent, at C$8.63 on the Toronto Stock Exchange.

(Reporting by Wojtek Dabrowski; editing by Frank McGurty)

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