Flex (NASDAQ: FLEX) raises full-year guidance, but quarterly free cash flow falls 14.4%

What happened

Flex Ltd. (NASDAQ: FLEX) raised its fiscal 2027 outlook and reported second-quarter adjusted operating margin of 7.1%, up from 6.0% a year earlier.

Net sales for the quarter ended Sept. 25 were $8.49 billion, up 24.8% from $6.80 billion a year earlier. Adjusted earnings per share reached $1.18, which Flex called a record, up 49.4% from $0.79.

GAAP diluted earnings per share were $0.70, up from $0.52. GAAP operating margin was 4.9%, up from 4.4%.

CEO Revathi Advaithi said the EPC Power acquisition completes Flex's end-to-end Power portfolio and will add to earnings right away in fiscal 2027. She called the unveiling of the Axiom name and expected leadership another step toward creating two focused companies.

Key numbers

Metric	Latest	Change	Source
Q2 net sales	$8.49 billion	from $6.80 billion, +24.8%	Calculated from SEC 8-K
Q2 adjusted EPS	$1.18	from $0.79, +49.4%	Calculated from SEC 8-K
Q2 adjusted operating margin	7.1%	from 6.0%, +1.1 percentage points	Calculated from SEC 8-K
Q2 free cash flow	$261 million	from $305 million, -14.4%	Calculated from SEC 8-K
Fiscal 2027 adjusted EPS guidance	$4.84 to $5.16		SEC 8-K Exhibit 99.1

Read more: Flex (FLEX) company research

What the raised guidance says

Flex lifted each full-year range. Net sales guidance moved to $34.9 billion to $35.9 billion from $33.7 billion to $35.2 billion. Adjusted operating margin moved to 7.6% to 7.8% from 7.0% to 7.2%. Adjusted EPS moved to $4.84 to $5.16 from $4.42 to $4.74.

At the midpoints, Flex puts full-year sales growth at 27% and adjusted EPS growth at 52%. The ranges leave out the planned spin-off of the Cloud and Power Infrastructure segment. They include acquisitions that closed after Sept. 25.

For the third quarter, Flex guided to net sales of $8.87 billion to $9.17 billion, which is 28% growth at the midpoint. It guided to adjusted operating income of $685 million to $715 million and adjusted EPS of $1.19 to $1.25, growth of 40% at the midpoint. The guidance assumes a 21% adjusted tax rate and about 375 million weighted average shares.

Stock perps: every US stock that trades as a perpetual future, by leverage, live

Where GAAP and adjusted results part ways

Adjusted operating income was $607 million. GAAP operating income was $414 million. Legal and other costs of $110 million, up from $9 million a year earlier, make up the largest piece of the gap. About $91 million of that related to the planned spin-off and $19 million to acquisition costs.

The rest of the gap is stock-based compensation, intangible amortization of $27 million and restructuring and impairment charges of $13 million. Flex leaves all of these out of its non-GAAP measures.

GAAP operating income rose 39.9% from $296 million, faster than sales grew. So the margin gain shows up before the add-backs too.

Cash flow, acquisitions and debt

Cash did not keep pace with profit. Free cash flow was $261 million, down 14.4% from $305 million, even though operating cash flow rose to $501 million from $453 million.

Capital spending rose to $241 million from $150 million. Flex says $61 million of separation costs tied to the spin-off cut free cash flow. For the six months, free cash flow was $302 million against $573 million a year earlier.

Flex spent $1.13 billion on acquisitions in the six months, against $43 million a year earlier. Long-term debt, net of current portion, rose to $5.21 billion on Sept. 25 from $3.75 billion on March 31. Cash rose to $3.08 billion from $2.39 billion.

Why it matters

OptimistFi has argued that Flex works if its end-to-end role keeps pulling it toward complex, higher-value programs that lift margins and cash flow. The quarter supports the margin half of that view. Operating margins rose on both GAAP and adjusted bases, and every full-year range moved up.

The cash flow half is not yet confirmed, since free cash flow fell in the quarter and in the six months. Much of the upside also sits in non-GAAP measures. Flex says it cannot reconcile its forward adjusted measures to GAAP without unreasonable effort.

What's next

Management's call on Oct. 28 at 7:30 a.m. CT (8:30 a.m. ET) reviews the quarter. The next quarterly report will show whether Flex lands inside its third-quarter ranges and whether free cash flow recovers from the separation costs.

The spin-off of the Cloud and Power Infrastructure segment still needs approvals and completion. Flex lists among its risks that the spin-off may not be completed on the expected timeline or at all.

More from OptimistFi

• FLEX stock: research and coverage of Flex
• Stock research on every company OptimistFi covers

From OptimistFi Perps