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Celestica's Q2 Revenue Drops; Acquires D&H Manufacturing
July 27, 2012 | PR NewswireEstimated reading time: 5 minutes
Celestica Inc., a global leader in the delivery of end-to-end product lifecycle solutions, today announced financial results for the second quarter ended June 30, 2012.
"Celestica continued to generate cash and achieved solid returns on invested capital in the second quarter, despite the challenging demand environment and the beginning of the wind down of our Research in Motion (RIM) manufacturing business," said Craig Muhlhauser, Celestica president and chief executive officer.
"Our priorities continue to be further diversifying our customer base and developing new capabilities to increase the value we deliver to our customers, while taking measures to prepare for an increasingly difficult economic environment."
"To further accelerate our revenue diversification, we are pleased to announce that we have entered into an agreement to acquire D&H Manufacturing Company (D&H), a leading manufacturer of precision machined components and assemblies. This acquisition will strengthen our complex mechanical and systems integration offering, and allows us to provide additional value to our customers in the diversified markets segment of our business. We expect the acquisition to close in the third quarter of 2012."
Second Quarter and First Half Summary
i. International Financial Reporting Standards (IFRS) net earnings for the second quarter of 2012 included an aggregate charge of $0.03 (pre-tax) per share for stock-based compensation and amortization of intangible assets (excluding computer software). This is slightly below the range we provided on April 24, 2012 of a charge between $0.04 and $0.06 per share. Our IFRS net earnings for the second quarter of 2012 also included a $0.09 (pre-tax) per share charge for restructuring charges primarily related to the wind down of our manufacturing services for RIM. Compared to our guidance, adjusted net EPS (non-IFRS) of $0.22 for the second quarter of 2012 was negatively impacted by $0.02 per share reflecting higher than expected income taxes.
ii. Non-IFRS measures do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other companies using IFRS or other generally accepted accounting principles (GAAP).
See Schedule 1 for non-IFRS definitions and a reconciliation of non-IFRS to IFRS measures.
Wind Down of Manufacturing Services for RIM
In June 2012, we announced that over the course of the third and fourth quarters of 2012 we will wind down our manufacturing services for RIM. For the second quarter of 2012, RIM represented 17% of total revenue (first quarter of 2012 and full year 2011 -- 19%). We expect to complete the majority of our manufacturing for RIM by the end of the third quarter of 2012. As a result, we expect our revenue from RIM to decrease to approximately 10% of total revenue for the third quarter of 2012. During the second quarter of 2012, we recorded restructuring charges of $20.1 million. This was comprised of charges related to the RIM wind down of $21.8 million (of which $9.1 million were cash charges) offset in part by reversals of certain prior unrelated restructuring charges totaling $1.7 million.
Due to the significance of RIM as a customer and in order to improve our margin performance, we will take additional restructuring actions in 2012 throughout our global network to reduce our overall cost structure. By the end of 2012, we expect to record total restructuring charges of between $40 million and $50 million, including the estimated $35 million we announced in June 2012. Of this amount, we recorded $20.1 million in the second quarter of 2012.
As a result of the wind down of our manufacturing services for RIM and the challenging demand outlook, we expect our revenue growth for fiscal 2012 will be negative and that we will no longer achieve (and now withdraw) our three-year compound annual revenue growth target of 6% to 8% and our annual operating margin target of 3.5% to 4.0% which we established at the beginning of 2010. We expect our operating margin for the second half of 2012 will be in the range of 2.5% and 3.0%. Despite our lower revenue expectations for 2012, we expect to achieve our annual ROIC and annual free cash flow targets for 2012.
Celestica Share Repurchase Plan
During the second quarter of 2012, we paid $36.2 million to repurchase for cancellation 4.6 million subordinate voting shares. The share repurchases were part of our NCIB accepted by the Toronto Stock Exchange in February 2012. The number of subordinate voting shares we are permitted to repurchase for cancellation under the NCIB is reduced by the number of shares we purchase for equity-based compensation plans. At June 30, 2012, we can repurchase up to an additional 5.2 million subordinate voting shares, of which approximately 3 million are intended for cancellation.
Acquisition to strengthen capabilities in the Diversified Markets
We announced today that we have agreed to acquire D&H Manufacturing Company based in California, a leading manufacturer of precision machined components and assemblies, primarily for the semiconductor capital equipment market. The operations provide manufacturing and engineering services, coupled with dedicated capacity and equipment for prototype and quick-turn support to some of the world's leading semiconductor capital equipment manufacturers. The business generates approximately $80 million in annual revenue and currently employs approximately 350 people.
"The acquisition further strengthens Celestica's diversified markets offering and will allow us to provide our customers with additional capability in large scale and high quality precision machining," said Muhlhauser. "The D&H team brings extensive engineering and technical depth to Celestica that will complement our capabilities in complex mechanical and systems integration services."
This acquisition supports our strategy to grow and diversify our revenue base in the industrial, aerospace and defense, semiconductor equipment, green technology and healthcare end markets. The purchase price is expected to be approximately $70 million and will be financed from our credit facility or cash on hand. The transaction is subject to customary conditions and is expected to close in the third quarter of 2012.
Third Quarter 2012 Outlook
For the third quarter ending September 30, 2012, we anticipate revenue to be in the range of $1.6 billion to $1.7 billion, and adjusted net earnings per share to be in the range of $0.17 to $0.23. We expect a negative $0.08 to $0.14 per share (pre-tax) aggregate impact on an IFRS basis for the following items: stock-based compensation, amortization of intangible assets (excluding computer software) and restructuring charges.
About Celestica
Celestica is dedicated to delivering end-to-end product lifecycle solutions to drive our customers' success. Through our simplified global operations network and information technology platform, we are solid partners who deliver informed, flexible solutions that enable our customers to succeed in the markets they serve. Committed to providing a truly differentiated customer experience, our agile and adaptive employees share a proud history of demonstrated expertise and creativity that provides our customers with the ability to overcome any challenge. For further information, visit www.celestica.com.