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CI

CELESTICA INC (CLS)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue $2.65B and adjusted EPS $1.20 were above the high end of guidance, driven by unanticipated operating leverage in CCS; results also beat S&P Global consensus ($2.56B* revenue; $1.12* EPS). Management raised full‑year outlook to revenue $10.85B (from $10.70B) and adjusted EPS $5.00 (from $4.75) . Values retrieved from S&P Global.
  • Record adjusted operating margin of 7.1% (vs. 5.9% in Q1’24) as HPS networking (400G/800G) scaled to ~$1.0B (39% of revenue). CCS grew 28% YoY to $1.84B with segment margin up 120 bps to 8.0% .
  • Q2 2025 guidance: revenue $2.575–$2.725B and adjusted EPS $1.17–$1.27; midpoint implies 7.2% adjusted operating margin and ~11% YoY revenue growth, broadly in line with S&P consensus ($2.67B*, $1.23*). FY25 free cash flow outlook maintained at $350M . Values retrieved from S&P Global.
  • Call catalysts: raised FY guide, accelerating 800G switch ramps, additional 1.6T wins slated to ramp in 2H26, optical transceiver program award, and reiterated ability to pass through tariffs while leveraging U.S./Mexico capacity if needed .

What Went Well and What Went Wrong

  • What Went Well

    • Record profitability: adjusted operating margin reached 7.1% on mix and scale; adjusted gross margin rose to 11.0% .
    • HPS momentum: networking revenue ~ $1.0B (39% of company), with strong 400G and accelerating 800G ramps; CCS margin expanded to 8.0% .
    • CEO: “highest ever adjusted operating margin of 7.1%… raising our full-year 2025 outlook” (revenue $10.85B, adjusted EPS $5.00) .

  • What Went Wrong

    • GAAP EPS impacted by non‑operating items: $0.16 per share negative TRS fair value loss; GAAP EPS $0.74 vs adjusted $1.20 .
    • Enterprise end market down 39% YoY due to technology transition at a hyperscaler; recovery expected in 2H25 as new AI/ML compute ramps .
    • Macro/policy fluidity: tariff uncertainty persists; while many key data center IT items received temporary exemptions, management remains vigilant; guidance assumes pass‑through of tariffs and no material policy changes .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($B)$2.50 $2.55 $2.65
GAAP/Reported EPS ($)$0.77 $1.29 $0.74
Adjusted EPS ($)$1.04 $1.11 $1.20
Adjusted Operating Margin (%)6.7% 6.8% 7.1%
Adjusted Gross Margin (%)10.7% 11.0% 11.0%
Free Cash Flow ($M)$75 $95.8 $93.6

Segment performance

SegmentQ3 2024Q4 2024Q1 2025
CCS Revenue ($B)$1.69 $1.74 $1.84
CCS Segment Margin (%)7.6% 7.9% 8.0%
ATS Revenue ($B)$0.81 $0.81 $0.81
ATS Segment Margin (%)4.8% 4.6% 5.0%

KPIs

KPIQ3 2024Q4 2024Q1 2025
HPS Revenue ($B)$0.761 (30% of total) $0.807 (32% of total) ~$1.0 (39% of total)
Communications YoY Growth (%)+45% +64% +87%
Enterprise YoY Change (%)+38% −10% −39%
Cash Cycle Days66 69 69
Inventory ($B)$1.83 $1.76 $1.79
Customers ≥10% of RevenueTwo (25%, 12%) Two (24%, 12%) Three (28%, 13%, 10%)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$10.70B $10.85B Raised
Adjusted Operating MarginFY 20256.9% 7.2% Raised
Adjusted EPSFY 2025$4.75 $5.00 Raised
Free Cash FlowFY 2025$350M $350M Maintained
RevenueQ2 2025N/A$2.575–$2.725B New
Adjusted EPSQ2 2025N/A$1.17–$1.27; ~20% adj tax rate New
Adjusted Op MarginQ2 2025N/A7.2% at midpoint New

Earnings Call Themes & Trends

TopicQ3 2024 (Q-2)Q4 2024 (Q-1)Q1 2025 (Current)Trend
AI/HPS roadmap and winsLeadership in 400G; early 800G ramps; first 1.6T win; Grok relationship disclosed Added second 1.6T with hyperscaler; full‑RAC win at digital native; ramp 2026 Additional 1.6T wins; samples in 1H25; mass production back half 2026; optical transceiver program award Improving
Tariffs / policyLimited emphasisOutlook raised; no specific tariff focusTemporary exemptions for servers/switches; tariffs expected to be passed through; assumptions embedded in guidance Stabilizing
HPS scale/mixHPS $761M (30%) HPS $807M (32%) HPS ~ $1.0B (39%) Improving mix
Capacity / regionalizationInvesting in clean‑room and Asia capacity for capital equipment Doubling Richardson (TX) revenue in 2025; ample U.S. power secured U.S./Mexico can triple revenue without more space; playbook to shift where needed Strengthening resiliency
Enterprise computeStrong Q3 on storage; flagging server transition Mid‑40% decline guided for Q1’25; ramp expected 2H25 Down 39% YoY; ramp reacceleration 2H25 reaffirmed Near‑term headwind, 2H recovery

Management Commentary

  • CEO: “Celestica delivered a strong first quarter… revenue of $2.65 billion and non‑GAAP adjusted EPS of $1.20, both surpassing the high end of our guidance… our highest ever adjusted operating margin of 7.1%.”
  • CEO on outlook: “We are raising our full‑year 2025 outlook… revenue to reach $10.85 billion… and non‑GAAP adjusted EPS of $5.00.”
  • CFO on segment drivers: “HPS revenue grew by 99% in the first quarter to just over $1 billion… driven by continuing hyperscaler demand for our 400G networking switches as well as the ramping of our 800G switch programs.”
  • CEO on tariffs: “Temporary exemptions for key data center IT hardware… we are seeing resilient overall demand… we remain vigilant and prepared to adapt swiftly to policy changes.”

Q&A Highlights

  • Visibility in CCS unchanged despite tariffs; hyperscaler CapEx plans and design activity for 1–2 years out remain robust .
  • Tariff exposure manageable: most tariffs recovered from customers; minor ATS adjustments and potential dual‑sourcing shifts toward Mexico; overall impact muted .
  • 1.6T timing: silicon samples in 1H25; majority of program ramps expected back half 2026; multiple wins secured .
  • U.S./Mexico capacity: Richardson and Monterrey at ~$800M each; can triple revenue without adding space; power secured; move complexity‑appropriate workloads regionally if required .
  • New wins: 800G optical transceiver project in Thailand; full‑RAC solutions with higher‑margin services expanding via NCS Global .

Estimates Context

  • Q1 2025 vs S&P Global consensus: Revenue $2.65B vs $2.56B*; Adjusted EPS $1.20 vs $1.12*. Beat driven by CCS operating leverage and HPS mix strength . Values retrieved from S&P Global.
  • Q2 2025 guidance vs S&P Global consensus: Company guided revenue $2.575–$2.725B and adjusted EPS $1.17–$1.27, broadly aligned with consensus of $2.67B* and $1.23*. Mix tailwinds (800G ramps) suggest upside bias if supply/pricing remains favorable . Values retrieved from S&P Global.
  • FY25 outlook raised: revenue to $10.85B and adjusted EPS to $5.00; Street models likely need upward revision on margins and EPS given higher HPS contribution and 7.2% adjusted operating margin target .

Financial Comparisons to Estimates

MetricQ1 2025 Company ActualQ1 2025 S&P ConsensusQ2 2025 Company Guidance
Revenue ($B)$2.65 $2.557*$2.575–$2.725
Adjusted EPS ($)$1.20 $1.115*$1.17–$1.27

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Mix-led margin expansion: HPS networking is scaling faster than expected, lifting CCS margin to 8.0% and company adjusted operating margin to a record 7.1%; this underpins the FY margin raise to 7.2% .
  • 800G cycle accelerating, 400G resilient: management sees both coexisting with a long 400G tail; 1.6T ramps begin in 2H26—sustaining multi‑year growth in networking .
  • Enterprise dip is transitional: hyperscaler AI/ML compute transition depresses 1H, but mass production ramps in 3Q drive 2H recovery; watch for execution milestones in 3Q/4Q .
  • Tariff risk mitigated: key server/switch exemptions plus pass‑through economics reduce P&L exposure; footprint optionality (U.S./Mexico) de‑risks potential regional shifts .
  • Cash generation intact: Q1 free cash flow $93.6M; FY free cash flow guide maintained at $350M to fund R&D, capacity, and opportunistic buybacks .
  • Secular AI tailwinds broadening: new optical transceiver and full‑RAC design wins (including digital natives) expand TAM and services attachment, supporting above‑trend profitability .
  • Near‑term setup: Q2 guide aligns with Street; upside skew if 800G ramps and HPS mix outpace plan; monitor CCS demand cadence and enterprise ramp timing .

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Additional materials read:

  • 8‑K / earnings press release (Q1 2025) .
  • Earnings call transcript (Q1 2025) .
  • Prior quarters’ press releases and calls for trend analysis .