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CI

CELESTICA INC (CLS)·Q2 2025 Earnings Summary

Executive Summary

  • Beat-and-raise quarter: Revenue $2.89B and adjusted EPS $1.39 both finished above the high end of guidance; GAAP operating margin was 9.4% and adjusted operating margin reached a record 7.4% . Management raised 2025 revenue/EPS outlook to $11.55B and $5.50 from $10.85B and $5.00, and lifted free cash flow to $400M from $350M .
  • Outperformance vs Street: Q2 revenue ($2.89B) and adjusted EPS ($1.39) exceeded S&P Global consensus of $2.67B and $1.23; EBITDA also beat ($332M vs $229M*)—driven by stronger networking demand and operating leverage . Values retrieved from S&P Global.*
  • Growth engine: CCS revenue rose 28% YoY to $2.07B with segment margin expanding to 8.3% (from 7.0%); HPS revenue was ~ $1.2B (+82% YoY) on accelerating 800G networking ramps; ATS grew 7% to $0.82B with margin improvement to 5.3% .
  • Setup for 2H/2026: Q3 guide implies continued double‑digit growth (revenue $2.875–$3.125B; adjusted EPS $1.37–$1.53; adj. op margin ~7.4%) and management highlighted 800G parity with 400G in Q2 and further 800G acceleration into 2H; 1.6T sampling began with revenue expected to start in late 2026 .

What Went Well and What Went Wrong

  • What Went Well
    • Record profitability: Adjusted operating margin hit 7.4% and adjusted gross margin 11.7% on volume and mix tailwinds in both segments. “Our adjusted operating margin of 7.4%…another new high for the company” (CEO) .
    • Networking momentum: HPS revenue ~ $1.2B (+82% YoY); 800G achieved parity with 400G in Q2 and is set to accelerate in 2H; three hyperscalers now have 800G awards with Celestica .
    • Guidance raised: FY25 revenue/EPS/FCF outlook increased to $11.55B/$5.50/$400M; Q3 guide embeds continued strength in communications and improving enterprise trends into year‑end .
  • What Went Wrong
    • Enterprise headwind: Enterprise revenue declined 37% YoY in Q2 (better than guide) due to an anticipated AI/ML compute technology transition; management expects ramp to begin in Q3 and strengthen into Q4/2026 .
    • Non-core items in GAAP EPS: GAAP EPS included a sizeable TRS fair value gain of $0.84/sh (pre‑tax) and aggregate pre‑tax charges of $0.33/sh (SBC, amortization, restructuring); restructuring exceeded the anticipated range .
    • Capital equipment moderation ahead: Semi-cap demand pulled forward into 1H; 2H revenues expected to be lower than 1H, though FY growth still in line with market rates .

Financial Results

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Revenue ($USD Billions)$2.392 $2.546 $2.649 $2.893
GAAP EPS ($)$0.80 $1.29 $0.74 $1.82
Adjusted EPS ($)$0.90 $1.11 $1.20 $1.39
Adjusted Operating Margin %6.3% 6.8% 7.1% 7.4%
Adjusted Gross Margin %10.6% 11.0% 11.0% 11.7%
GAAP Operating Margin %5.6% 8.0% 4.9% 9.4%
Free Cash Flow ($USD Millions)$65.6 $95.8 $93.6 $119.9

Segment performance and mix

SegmentQ4 2024Q1 2025Q2 2025
ATS Revenue ($B)$0.81 $0.81 $0.82
ATS Segment Margin %4.6% 5.0% 5.3%
CCS Revenue ($B)$1.74 $1.84 $2.07
CCS Segment Margin %7.9% 8.0% 8.3%
HPS Revenue ($B)$0.80 ~$1.00 ~$1.20

Key KPIs

KPIQ2 2024Q1 2025Q2 2025
Adjusted ROIC %26.6% 31.5% 35.5%
Cash Cycle Days—69 66
Capex % of Revenue—1.4% 1.1%

Q2 2025 vs consensus (S&P Global)

MetricActualConsensus*
Revenue ($B)$2.893 $2.669*
Adjusted EPS ($)$1.39 $1.23*
EBITDA ($M)$331.6*$228.6*

Note: * Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious Guidance/OutlookCurrent Guidance/OutlookChange
Revenue ($B)Q3 2025—$2.875–$3.125 —
Adjusted EPS ($)Q3 2025—$1.37–$1.53 —
Adjusted Operating Margin %Q3 2025—~7.4% at mid-point —
Adjusted Effective Tax Rate %Q3 2025—~19% —
Revenue ($B)FY 2025$10.85 $11.55 Raised
Adjusted Operating Margin %FY 20257.2% 7.4% Raised
Adjusted EPS ($)FY 2025$5.00 $5.50 Raised
Free Cash Flow ($M)FY 2025$350 $400 Raised

Select segment outlook (Q3 2025, qualitative)

  • ATS: revenue down low single‑digit % YoY due to non‑renewal of a dilutive A&D program .
  • CCS – Communications: revenue growth in low 60% range on continued 800G ramps; 400G moderating but strong .
  • CCS – Enterprise: mid‑20% decline YoY as AI/ML compute transitions; ramp begins in Q3, strengthening into Q4 .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
800G networking & HPS1.6T wins; HPS $0.8B in Q4 800G ramping; HPS >$1.0B; 400G robust 800G at parity with 400G in Q2; accelerating in 2H; wins at top 3 hyperscalers Improving
1.6T timingNew awards and design wins Mass production largely 2H’26 Tomahawk 6 bring‑up in days; revenue in back‑half 2026/2027 On track
Tariffs/supply chain—Exemptions on servers/switches; pass‑through; visibility intact “Minimal impact” in Q2; assume no material changes; substantially all tariffs recovered Stable
Enterprise AI/ML compute—Transition depressing 1H; ramp in Q3; growth resumes in Q4 Ramp starting Q3, strengthens into Q4/2026 Improving 2H
Capacity/regionalization—U.S./Mexico/SEA campuses; can add $2–$3B quickly; $800M run‑rate in Richardson/Monterrey each exiting ’25 Comfortable capacity; ability to support $3–$4B of additional revenue; ramps in Thailand/Mexico/US Ample capacity
Semi-cap (capital equipment)—Above‑market FY25 growth; 2H flattening 1H pull‑forward; 2H lower vs 1H; FY growth in line with market Moderating 2H
Services expansion—NCS Global enhances services; higher‑margin opportunity Expanding services; more material by ~2027 Building

Management Commentary

  • “We achieved revenues of $2.89 billion and adjusted EPS of $1.39…Our adjusted operating margin of 7.4% once again marked the highest performance in the company history.” – Rob Mionis, CEO .
  • “Adjusted gross margin…11.7%, up 110 bps…adjusted operating margin 7.4%, up 110 bps…driven by higher margin across both our CCS and ATS segments.” – Mandeep Chawla, CFO .
  • “We are increasing our revenue outlook from $10.85 billion to $11.55 billion…non‑GAAP adjusted EPS…from $5 per share to $5.50 per share…free cash flow…from $350 million to $400 million.” – Rob Mionis, CEO .
  • “800G now is ramping…basically on parity with our 400G volumes in the second quarter…we have won 800G programs with all three [top hyperscalers].” – CFO .

Q&A Highlights

  • 800G breadth and trajectory: Every 400G customer converted to 800G; 800G at parity with 400G in Q2 and set to outpace in 2H; wins across top three hyperscalers .
  • Enterprise AI/ML transition: Enterprise down 37% YoY in Q2 due to transition; new generation begins ramping in Q3, improving into Q4 and 2026 .
  • Capacity and capex: Comfortable capacity across Thailand/Mexico/US; ability to support $3–$4B incremental revenue; typical site expansions ~12 months; capex intensity 1.5%–2% of revenue .
  • Semi‑cap demand: 1H strength reflecting normalization/pull‑forward; 2H moderates but FY growth tracks market .
  • Services strategy: NCS Global foundation; services margins above corporate average; scaling with digital native win, more material by ~2027 .

Estimates Context

  • Q2 beats vs S&P Global: Revenue $2.89B vs $2.67B*, adjusted EPS $1.39 vs $1.23*, EBITDA $332M vs $229M*—broadly ahead on higher communications/HPS volume and operating leverage . Values retrieved from S&P Global.*
  • Forward vs Street: Q3 guidance of $2.875–$3.125B revenue and $1.37–$1.53 adj. EPS compares to consensus of ~$3.04B and ~$1.49*, respectively—top end suggests upside if 800G ramps continue and enterprise recovers as planned . Values retrieved from S&P Global.*

Q3 2025 guide vs consensus (S&P Global)

MetricGuidanceConsensus*
Revenue ($B)$2.875–$3.125 $3.039*
Adjusted EPS ($)$1.37–$1.53 $1.4902*

Note: * Values retrieved from S&P Global.

Key Takeaways for Investors

  • Quality “beat and raise” on both revenue and adjusted EPS with record adjusted operating margin; operating leverage remains potent as mix skews to HPS .
  • Networking cycle remains robust: 800G ramps at parity with 400G in Q2 and accelerates in 2H; breadth across top hyperscalers de‑risks execution and supports sustained growth into 2026 .
  • Enterprise drag should abate starting Q3 as the AI/ML compute transition ramps, adding a second 2H driver alongside 800G .
  • FY25 outlook raised across revenue, EPS and FCF; Q3 guide implies continued double‑digit growth and margin resilience despite macro/tariff noise .
  • Watch non‑core GAAP items (TRS fair value, restructuring) when comparing GAAP vs non‑GAAP EPS; operationally, adjusted metrics better reflect core performance .
  • Capital intensity remains modest (1.5%–2% of revenue) with ample capacity in Thailand/Mexico/US campuses to support upside demand scenarios .
  • Near‑term trading catalysts: Continued 800G acceleration, enterprise ramp evidence in Q3, and potential upward estimate revisions for 2H/FY25 given raised outlook and momentum in CCS .