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Fitch Ratings Notes Celestica's 'Stable Outlook'
January 6, 2006 |Estimated reading time: 1 minute
NEW YORK — Fitch Ratings, a global rating agency, has given Celestica Inc. a stable outlook rating, reflecting somewhat weak but improved operating performance and concentration to traditional end-markets characterized by more mature growth prospects.
Fitch Ratings assigned an issuer default rating of BB-, an unsecured credit facility rating of BB-, and a senior subordinated debt rating of B+. Fitch also predicts that EBIT margins for the EMS industry will remain thin, especially for companies like Celestica with traditional EMS models that focus on contract design and manufacturing activities. Competition from faster-growing original design manufacturers (ODMs) and the ODM model, as well as expectations for greater program-demand volatility across the industry, remain a concern.
Celestica's strengths center on its historically conservative capital structure, improved leverage ratios from higher profitability and recent debt reduction, and adequate liquid position with limited near-term debt maturities, states Fitch. Ratings take into account Fitch's belief that Celestica's operating performance should improve gradually, driven by additional cost savings related to the company's on-going restructuring activities.
Fitch recognizes the increased volatility of large customer programs and a less-diversified end-market portfolio could affect top-line results negatively and believes Celestica's organic revenue growth will be flat to slightly positive for 2006. Demand in Celestica's largest end-markets, (communications infrastructure and computing), which represents about 75% of total revenues, is should grow in the low single digits through 2006. The agency also notes Celestica's efforts to diversify its revenue mix by increasing penetration in faster-growing, nontraditional end-markets will be successful, but not immediately because of intense competition from other Tier-1 EMS providers, as well as Asian providers and ODMs.