Celestica Inc. (TSX: CLS) offers innovative supply chain solutions its customers across the globe. The Company has two operating segments, namely, Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). ATS segment consists of ATS end market and is comprised of the aerospace and defense (A&D), industrial, energy, etc. while CE business includes semiconductor, display, and power & signal distribution equipment businesses.

The Group confirmed a new order from StarFish Medical Inc., a Canadian medical device company for manufacturing 7,500 ventilators.

Q1FY20 Financial Highlights: For the period ended March 31, 2020, CLS reported its top line at USD 1,318.6 million, reflecting a decline of 8% on y-o-y basis. The decrease was due to lower income from both the segments as compared to the previous corresponding period. The Group’s operations were impacted by a lower order volume on account of COVID 19. Gross profit improved to USD 91 million from USD 87.4 million in pcp, thanks to a significantly lower cost of sales. Earnings from operations stood at USD 13.1 million, as compared to USD 108.4 million in pcp due to a recovery of USD 91.5 million in the previous corresponding quarter. Earnings before tax stood at USD 2.3 million, as compared to USD 90.3 million in the pcp. The Company reported a net loss of USD 3.2 million, as compared to USD 90.3 million in the previous corresponding period. The Company exited the quarter with cash and cash equivalent of USD 479.5 million while total assets stood at USD 3,560.7 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The majority of the product offerings are categorized under the ‘essential services’ which ensures financial stability. The Management expects a similar set of results for the second quarter of FY20 and also expect a higher material impact if the restriction is extended. The Company has witnessed a reduction in global operations and currently running at a capacity of 80% to 85%, which we believe is justified looking at the current economic cycle. The Company witnessed up to ~50% materials constraints from the specific suppliers, followed by a shortage in the raw materials. The Company further expects, the supply limitations are likely to impact the Q2FY20’s operations, followed by an increase in direct costs and revenue loss due to factory closure. Hence, we preferred to remain on the sideline and recommend a ‘Watch’ stance on the stock at the closing price of CAD 8.73 on June 18, 2020.

CLS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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