Celestica, Inc. (TSX: CLS) is one of the leading electronics manufacturing services company across North America, Europe and Asia, serving the computer, and communications sectors.

Outlook: The Company indicated that the business witnessed an adverse impact of ~US$ 85 million on revenues due to the reduction in the order book in the first quarter. Moreover, the company anticipates demand shortfalls to impact its revenues in the coming quarters.

Q1FY20 Financial Highlights: On April 29, Celestica posted its first quarter results. The company’s revenues of US$ 1,318.6 million decreased 8% y-o-y from US$ 1,433.1 million in the previous corresponding quarter. The decline was primarily attributable to the soft demand, reflecting the negative impact of COVID-19 outbreak.  Revenues at its Advanced Technology Solutions decreased 5% y-o-y. Meanwhile, the Connectivity & Cloud Solutions segment’s revenue fell 10% y-o-y. Gross profit rose to US$ 91 million, as compared to US$ 87.4 million in pcp, due to a significant improvement in cost of sales. Earnings from operations stood at US$ 13.1 million, substantially lower from US$ 108.4 million, reflecting inclusion of other recoveries amounting US$ 91.5 million in the previous corresponding quarter, higher R&D expenses, partially offset by lower amortization of intangible assets.The Company reported a net loss of US$ 3.2 million, due to higher income tax expense, partially offset lower finance costs.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock soared 76% in the last one month, outperforming the index by ~59%. The Company offers manufacturing services to the electronics and engineering players. The company purchased additional materials during the quarter, in order to mitigate current and future shortages arising due to COVID 19 crisis. The company has a healthy clientele and ample liquidity to continue its operations in the current crisis. The Group informed a decline in the order book is likely to affect its revenues. Notably, reduced order book had a negative impact of US$ 85 million on its revenues in the first quarter. Meanwhile, operational challenges and material constraints could pose challenges. Hence, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 8.69 as on April 30, 2020.

CLS One-Year Daily Price Chart (Source: Thomson Reuters)

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