Q4 2023 Flex Ltd Earnings Call
Speaker 1: Cloud programs. Our vertical integration, advanced technology capabilities and scale help drive these opportunities and we have one with multiple hyper scale cloud partners.
Other notable trends. This year include our growth in renewable energy related hardware from Inverters to EV Chargers accelerated by the global shift to clean energy.
We also see increasing demand from the U S. I array passage, creating additional opportunity to help our customers take advantage of this growing market.
Now turning to supply chain, we continue to navigate the ongoing challenges in supply constraints during the fiscal year How's.
However, we did see improvements in many areas as the year progressed.
While there is still the occasional challenge, which is a part of our everyday business. The most significant supply issue remaining as the constraints with larger node semiconductors that primarily affect our reliability segment.
Regionalization remains an important topic as companies strive for efficiency and resiliency.
There's a lot of complexity here and the topic often gets over simplified.
Our core value proposition is that we connect design and advanced manufacturing supported by vertical integration and complex supply chains.
<unk> bring circular economy capabilities, such as refurbishment and recycling to minimize waste and.
And we do this in every major theater of operation, which is critical to regionalization.
Because at the heart of it regionalization is about moving production closer to consumption, adding resilience to the value chain and addressing sustainability concerns.
<unk> has a strong track record of helping customers optimize their outsourced manufacturing and services guiding them on what products should be produced rare and balancing the dimensions of technology labor and supply.
We are very well positioned to help companies reduce risk decrease time to market and become more resilient.
A good example is in our lifestyle business, which significantly outperformed weak consumer end markets in fiscal 'twenty three from targeted wins and share gains. Many of these wins came from our ability to regionalize, our customers manufacturing and deliver in multiple geographies.
Overall, we've done very well managing through this cycle and that is reflected in our fiscal year performance.
We have built strong relationships with our customers and our suppliers increased our opportunities for growth and implemented new capabilities across our operations that make us even stronger and more resilient going forward.
Now turning to slide six.
Our accomplishments and contributions have been recognized by our customers and industry groups that acknowledged flex as a leader in advanced manufacturing technology as well as our efforts to deliver for our customers in a responsible and sustainable manner.
I'm very proud of what we've accomplished.
Paul will provide guidance in just a moment, but I want to make a few comments as we look ahead to fiscal 2024.
As you are well aware, it's a highly dynamic environment and there is increasing uncertainty with general concerns on recession interest rates and geopolitical dynamics.
However, we always want to provide the most transparency we can based on our visibility into current customer demand.
We will manage through this environment as we have through all the challenges of the last several years.
Looking past the near term macro uncertainty, we believe the fundamentals of outsourced manufacturing remained very strong our.
Our value proposition on our ability to manage through the cycle positions us well for the future with that I'll turn it over to Paul to take you through the financials Paul Okay. Thank you Ray Ritchey and good afternoon, everyone.
I'll begin with our fourth quarter performance on slide eight.
Fourth quarter revenue was $7 5 billion up 9%.
Gross profit totaled $594 million and gross margin improved 60 basis points to seven 9%.
Operating profit was $364 million with operating margins at four 9%, improving 60 basis points year over year and.
And earnings per share came in at 57 for the quarter an increase of 10%.
Turning to our fourth quarter segment results on the next slide reliability revenue increased 14% to $3 2 billion op.
Operating income was $142 million up 1% and operating margin for this segment was four 4%.
Revenue growth was strong however, the program investments in labor inflation, we mentioned last quarter continued to pressure margins in the segment.
We expect reliability margins to progressively improve over the next several quarters.
And agility revenue was $3 7 billion up 5%.
Operating income was $171 million up 13% and.
And strong execution and cost management drove an impressive four 6% operating margin.
Finally next tracker revenue came in at $519 million up 18% year over year.
Operating income at next tracker was 70 million three times the level. It was last year with operating margins now at 13, 5%.
Looking at our full year results on slide 10 revenue was $30 3 billion up 17%.
Gross profit totaled $2 3 billion and gross margin improved to seven 7%.
Operating income for the fiscal year 2023 totaled $1 4 billion up 23% with a record four 8% operating margin.
For the full year flex achieved EPS of $2 36 up 20%.
It's worth pointing out.
The greater than typical differential between our GAAP and non-GAAP earnings was primarily due to the next tracker IPO related charges.
On slide 11.
We have a performance by business unit for the full year reliability revenue was $12 7 billion with operating margin, finishing at four 8%.
Within reliability automotive revenue was up 22%, primarily driven by new project, New project ramps for our Nextgen mobility portfolio.
Health solutions was up 9% and industrial was up 24% aided by very strong growth in renewable energy hardware EV charging and data center power.
Overall, the solid double digit growth in this segment is representative of the strength of our comprehensive portfolio.
The agility segment revenue came in at $15 8 billion delivering a four 4% operating margin.
This strong operating margin is reflective of our strategy to focus our efforts on more profitable business as well as strong cost management on slowing in consumer markets.
With an agility CEC was up 30%, resulting from new cloud wins, along with portfolio exposure to critical infrastructure like security and networking.
Consumer devices revenue was down as expected reflective of the consumer end market weakness.
And finally <unk>.
Lifestyle revenue increased 2% as share gains drove better than market performance more than offsetting softer consumer spending.
Next tracker completed the year with revenue of $1 9 billion a year over year improvement of 31% and ended the year with a 10, 7% operating margin over four points higher than the prior year.
Overall, we were pleased with our performance and our ability to deliver strong sales and profit growth in a challenging year.
Moving on to cash flow on slide 12, we.
We saw inventory improvements in Q4 with networking capital advances down.
With inventory net of working capital advances down 8% sequentially total.
Total gross inventory also dropped this quarter by about $300 million.
We continue to see improving signs here. However, we're still managing through shortages and extended lead times for some materials. So we expect inventory will be slow to unwind in the near term.
Q4, net capex totaled $180 million and for the full year came in at $615 million on target at 2% of revenue.
We expect similar investment levels in our fiscal 2024.
Free cash flow was $270 million for the quarter and $335 million for the full year.
We expect stronger cash generation in FY 'twenty four as the severity of the component shortages improves free.
Free cash flow in 2024 should be 600 million or more.
In terms of financing and capital structure, we made some minor debt repayments in Q4, retiring the $79 million Indian Capex loan and a $250 million Euro term loan that's north of $300 million in debt retirement, but you won't see that in consolidation as we put a 100.
$50 million of debt onto next tracker as part of their IPO.
Maybe a couple of comments on our cash balance before we turn to capital allocation.
Cash on hand at $3 3 billion is solid.
And more than we would typically carry.
The elevated level as a product of two things one buffer cash given the level of cash cycle volatility created by global component shortages, a situation, which as we have mentioned is beginning to improve and to proceeds from the next tracker IPO, where significant about $700 million I'll add.
AD, we do not plan to carry this elevated level of cash indefinitely.
Turning to slide 13, we remain focused on our capital allocation priorities, including investing in future growth and return of capital.
We bought back $44 million worth of stock in the quarter and $337 million for the full fiscal year.
Please turn to slide 14 for our segment outlook for the fiscal first quarter.
For reliability solutions, we expect mid single to low double digit revenue growth for the segment driven by growth across all three business units based on continuing longer term secular trends.
Revenue and agility will be down mid single to low double digits with consumer end market weakness affecting both lifestyle and consumer devices.
Offsetting modest growth expected in CEC.
On to slide 15 for our quarterly guidance, we expect revenue in the range of seven to seven 5 billion with adjusted operating income between 320 and $350 million.
Interest and other expenses estimated to be around $52 million in the quarter and we expect the tax rate to be around 13%.
So for the quarter were expecting growth from <unk> at the midpoint with some pressure from interest and taxes.
All of that translates to adjusted EPS between <unk> 47, and 53, a share based on approximately 459 million weighted average shares outstanding.
This guidance includes the impact of approximately three to four cents of Noncontrolling interest.
Resulting from the <unk> IPO.
Looking at our full year guidance on the following slide.
It's very it's a very dynamic macro right now however, based on our current demand indicators for reliability. We expect the positive trends. We described in Q1 to continue through the year for.
For agility, we also expect the challenging environment to continue beyond Q1, with some potential improvements late in the year.
We expect next tracker to continue to grow based on their strong positioning in the utility solar space.
We currently expect full year revenue between 35 and $31 5 billion.
Adjusted operating margin between four 9% and five 1% and adjusted EPS between $2 35, and $2 55 a share.
This includes as as Q1 does approximately 17 to 19 of Noncontrolling interest again, resulting from the next record separation.
To close I'd, just like to reiterate our confidence in the strategy to deliver against our longer term goals over the last three years. We've demonstrated how we can manage through many challenges improve our portfolio and still deliver double digit annual EPS growth. So we'll manage through this current backdrop and.
We remain focused on creating long term value for our stakeholders.
I will now turn the call back over to Chris to begin the Q&A.
Thank you we will now begin the question and answer portion of today's call.
I would like to ask a question. Please press star one on your phone as a reminder, we ask that you. Please limit yourself to one question and one follow up one moment. Please for your first question.
Our first question comes from Steven Fox Fox Advisors, Steven Please go ahead.
Hi, good afternoon.
I was just curious one if you are still comfortable with the two.
Fiscal 'twenty five guidance that you laid out at your analyst meeting a year ago, and how it might change within.
Slowdown in some of the core agility segments, and then secondly, I know you just said that you're not planning on carrying the excess cash for a while but I mean your stock was recently under $20 and Youre, putting up very strong guidance here.
What's the impetus that would get you to sort of buy back significant stock.
Going forward. Thanks.
Thanks, Steve Hey, I'll start with the first one and then give it to Paul for the second one.
So I would start with saying that we're not giving an FY 'twenty five guidance here, but.
We're very comfortable with how we've progressed towards those long term goals that we have set for ourselves. We had said that our expectation was for high single digit CAGR over a number of years.
We still expect that to be the case, even with a slower growth in fiscal 'twenty four 'twenty three was up really strong 17%.
And so overall, we feel still good about our <unk>.
Slide 25 guidance that we have given.
We're not going to be going into the details here.
And then you would see with our current guide and what they performed with FY2023.
That it still remains on track even with all this craziness around the macro dynamics and everything that's happening.
I think we've managed this situation really well, which makes us comfortable with that long term goals. We have given you Paul on cash, yes, just as Stephen on the cash I. Appreciate the question as I mentioned in the prepared remarks cashes was definitely on the high side at the end of Q4.
Our priority is stock repurchase full stop if you saw what we did in Q4. It was much lighter than I would like to have seen it that was due to the blackout associated with the next tracker IPO. Once we knew we were going to be into the market sort of have to stop trading and then theres a bit of a quiet period thereafter.
So if I had my druthers, we would have done more in Q4.
We're going to do more in Q1 than what we did in Q4 and again Thats. If you look at our all of our capital allocation choices stock repurchase right now is by far the highest priority.
Thanks for that and ready to just the one part of the question was on.
The agility segment anything you have to do to manage that sort of in a down here. Thank you very much.
Yes, I would say that we've done really well in terms of how we have managed the agility segment couple of years ago, maybe three years of Glen forgetting how long ago, we talked about.
<unk> really focused on having the right operational model to help agility manage through the ups and downs of the demand cycle, knowing it's a little bit more volatile than our reliability business and that has really helped us. If you can see in terms of the operating margin performance for agility through this time.
I think we will see what where we have commonly talked about before which is lifestyle and consumer devices are pressured as you can see in the consumer market.
In our lifestyle will probably lap the comps a little bit sooner because they've been seeing the impact of that for a few quarters.
CEC I'd say theres a lot of noise.
In cloud, we still expect cloud to grow positively.
<unk> had a strong they had a strong FY2023 they grew 30%. So I'd say overall demand and agility will fluctuate some likely I've talked about in FY 'twenty four but we feel very good about the operational cadence we have in terms of managing margins for this business through the cycle.
Great. Thank you.
Thank you. Our next question comes from Mark Delaney Goldman Sachs. Martin. Please go ahead.
Good afternoon, and thanks for taking the questions first just a quick housekeeping one just want to make sure I understand how guidance would've prepared.
Compared to how you previously reported so youre, assuming a flat share count sequentially.
So you're not baking in I would think any big use of <unk>.
Proceeds from next tracker you say.
There's a 3% to 4% impact from Noncontrolling interests. So is it fair to conclude that EPS guidance would have been at the midpoint 53 to 54 zones. If there wasn't a transaction done.
Youre, absolutely right Mark Youre, absolutely right. So all else equal we would be up quite a bit more year on year. If you just look at it purely on a on an EPS on an EPS basis. Your comment on share Count is also correct. We typically guide flat, but I think everybody knew.
Those were sitting on north of $3 billion worth of cash and as I as I mentioned this Steven.
Our capital allocation priority is weighted towards repo at the moment.
Got it okay. That's helpful just to level set.
Guidance in.
Relative to the prior accounting methods.
And then just.
Quick question on the business was last quarter on your earnings call. You said you expected to grow in fiscal 'twenty four you're not formally guiding for revenue growth.
A little bit year on year within your revenue guidance, you're calling out though increased macro headwinds.
It sounds like you've gotten a bit more difficult over the last 90 days or maybe you can just talk about whether or not they have become incrementally more challenging.
So have your views come down overall or is there something incremental on a company specific basis thats offsetting that share gain thanks.
No Mark.
I'd say that we have been super consistent on the C&I for the last maybe three or four quarters right. We've talked about how they're planning for demand slow down kind of what our recession playbook looks like.
They have been really focused on forecasting that demand on behalf of our customers for a while so they've been super consistent in terms of our view of how fiscal 'twenty four will play out and that's why it's not much of a surprise and we are very comfortable saying a few months ago on our last earnings call that we will see positive.
<unk> growth for fiscal 'twenty four we are guiding in line with that so.
Despite all the noise in the last 90 days, we haven't changed our view in terms of how we see fiscal 'twenty four play out.
We have to talk about macro headwinds and all of that is too much noise in the system not to talk about it right and but what I would say is we've been very consistent rate than they have been talking about this for three or four quarters in terms of how we see the recession play out how we're planning for it and I would say despite all the noise that has been quite consist.
And what we said 90 days ago, and what we're seeing now in terms of our overall <unk>.
<unk> trade. So we're not seeing anything changed from RV I think he is hearing a lot of noise publicly about this but how we have thought about our six segments and how they're going to perform through the cycle.
It really hasnt changed at all for Us and have been Super consistent which is what helps us give this kind of guidance and pretty much in line with with what we thought it was going to be Paul anything you want to add to that no I would just say the turmoil that we're seeing externally is more regional banking than it is with our end markets things haven't changed significantly.
A couple of little puts and takes but on balance I would say where we are.
Pretty consistent I would say even over the last six to nine months.
Thank you.
Thank you. Our next question comes from <unk> <unk> Bank of America. Please go ahead.
Hi, Thank you for taking my questions.
My first question.
Related to your full year fiscal 'twenty guide.
Paul what have you factored in with respect to year on year negative impact on the topline from inflation pass through and also year on year margin benefit from the same inflation pass through impact.
And I think we will buy into the guidance.
Free cash flow of 600 million, which is almost double year on year, but you also said inventory will be slow to unwind in the near term.
Or can you give us your thoughts on how we should think about free cash flow linearity in fiscal 'twenty four.
Okay sure Theres, a fair amount to unpack that route blue So if I Miss something redirect and I'll make sure that I can answer it but first on the what do we factored in for the guidance in terms of pass through.
Maybe just talk real quick about Q4, so Q4 <unk>.
<unk> were slightly less actually than what we had seen a year ago now a year ago.
So we were at peak levels in terms of inflation rate and so we were passing through a lot and as you and I think everyone else understands those are very low calorie pass through.
So again, what we saw this past quarter down just a little bit.
What we've assumed going forward look it's a little awfully hard to call right now we put a guidepost out there for the full year 2024, I'm not exactly sure. How this is going to play out.
But we're assuming it's essentially essentially going to be flat.
How that would affect.
How that would affect <unk>, well, if recoveries come down on a percentage basis that would be helpful.
I think the second question was on free cash flow and inventory you're right. We're we're guiding to double the cash generation that we saw in our FY2023 600, I think what I said was 600 or more.
It will be a slow and gradual improvement to the working capital situation I was really happy to see the the tailwind that we saw in Q4 working capital advances were up sequentially inventory was down sequentially. So that was a good guy for cash.
But I don't expect that we're going to continue at a $300 million down a quarter after quarter after quarter, it will be a slow rollout and cash flow.
If you look at how we've how we've typically performed cash flow tends to be more back half loaded. So I think that's probably what we'll see here again again this year.
Okay. Thanks for the details there Paul initial my follow up I have a question for Ray Ritchey.
You've been scaling the business more towards the longer lifecycle areas like automotive health care and industrial.
So can you give us your thoughts on how you see the capital intensity of the business evolving over the next two or three years I know you're waiting capex can be at the same 600 level as in fiscal 'twenty, three which is higher than the past two or three years. So should we expect this level of capex going forward and where do you see the investments.
Which end markets in which areas are you investing more.
<unk> growth. Thank you.
Yes. Thanks.
Sure.
Redirecting this business with the strategy for the last couple of years right. So I would say the how our Capex has played out the last few years is not going to be very different than what you see moving forward in terms of the mix between the liability and agility I've said this before in prior calls what we've gotten.
Really good that is using our equipment, which is common across various customers and redirecting that well based on the pluses and minuses of volume and that has helped in terms of how the overall manage our capex across the businesses and that applies for both reliability and agility, So I'd say.
Overall capex for flex will remain in line with what we have talked about but it does require us to be very efficient in terms of use of capital across our businesses and how we manage volumes going up and down and use capital more efficiently I would say in terms of reliability. The fact, you would see is more.
Investment in ramps because most of the programs very complicated.
And they involve very high complex automation for areas like health care and automotive so the investments will be more opex heavy towards ramps, which is what you are tending to see from US right now and then I'd say the other thing is if you look at the effect of regionalization, which is happening as it was.
Out of what is happening in the macro world, even that will redistribute our capital more efficiently and that's what we are planning to do and we've been doing that the last couple of years and that will leave a little bit of capex towards towards liability, which is driving a lot of growth two words too.
So that part of the business.
Net net I don't see a lot of change in terms of overall capex the distribution of it may continue to shift.
Okay. Thank you for all the details.
Thank you. Our next question will come from Matt Sheerin Stifel Mats. Please go ahead.
Yes. Thank you my first question just regarding your guidance or framework for FY 'twenty four which.
Calls for modest growth at 2% or so.
Given.
Q1 is basically going to be flat to slightly down year on year.
Implies as the more backend loaded growth would.
Would you expect some of that to come from a rebound in CEC or is that based on continued growth in the reliability markets.
Sure Matt.
It's a good question I'm glad you asked.
Not a huge change Q1 versus full year I think Q1 at the midpoint is down about one at the midpoint full year up to so a little bit of a back half load.
But.
I think about the whole business Theres, a lot of moving pieces and so let me just break down a few of them that kind of illustrate what's happening if.
If you look at maybe rewind a year ago, what we started to see in probably June of last year was softening consumer end markets. We saw it in our consumer device business within agility. We also saw it in the lifestyle business.
As as investors you didnt necessarily see it in lifestyle, because we had so much share gain.
But the underlying markets were soft.
We haven't yet lapped.
<unk> comps and those consumer end markets, because we really didn't see things soften until June timeframe. So as we look ahead here to Q1, which is our June quarter will have pressure in both lifestyle and consumer devices just on the continuation of what we have seen over the last nine months being fairly soft fairly soft end markets. So a bit of.
Tough comp in those businesses.
I think everybody sort of expecting enterprise it spending to be a little bit soft we're expecting that in the first quarter, what we're expecting in the second half within that CEC business strong cloud growth.
That's driven okay.
The markets will be what they will be but we have fairly significant share gain expected in the second half and as we ramp on that that will give us tailwind in the in the CEC business.
And then if you look at the three pieces within reliability all of them have growing businesses with some ramps in the second half the health solutions business is doing well I think we'll continue to ramp as we move into the back half of this year for for that group the.
The renewable energy piece within reliability is doing well and continues to ramp and we continue to see strong take rates on our next gen mobility.
Portfolio within automotive things like <unk> continued to do well and we're continuing to ramp there. So it's kind of the mix of the business softer Q1 first half driven by consumer.
And I think as we lap those comps things get a little easier on the consumer side and we have some nice ramps.
In the hopper for for the back half of the year in particular and reliability.
Okay. Thank you that was helpful. And then just regarding the expectations for margin improvement within reliability as you progress through fiscal 'twenty four.
What are the key drivers of that.
So.
It will be similar to similar to the <unk>.
Inventory situation it will be a gradual improvement in reliability, we're making a number of investments in that business right. Now is right with you had pointed out really the last couple of quarters, which has put a little bit of pressure on margins I think the other challenge and reliability at the moment.
As we continue to suffer from.
The larger node semiconductor shortages, which means you have in some cases idle resources and Thats been a challenge for us really over the last year, you don't want to take high quality resources offline you have to be ready when stuff arrives and again, we have a number of ramps in that in that business that we need to make sure that where we are.
Well ready and funded for.
But it will be a gradual improvement as we move through the year I think it'll be.
Improving chips, it will be coming up to rate on ramps and better absorption.
Okay, great. Thank you.
Thanks, again, ladies and gentlemen, as a reminder, should you have a question. Please press star one on your Touchtone phone. Our next question comes from Shannon Cross Credit Suisse. Shannon. Please go ahead.
Thank you very much for taking my question.
Curious now that we're getting closer to the.
The IRI funds starting to flow and hopefully some clarity on.
And who is going to benefit where can you give us any color on how youre thinking about it.
Our renewables segment.
I have a follow up.
I will tell you Shannon there is going to be a very well executed conference call in about.
20 minutes from the next tracker team.
And they can probably better cover IRA than than I can I'm half joking, they probably won't say a whole lot either because it's still taking shape I think.
We've been talking about clarity on that for quite some time you have a government agency that has been tasked with adjudicating the details of all that big complicated Bill.
We thought it was going to be clarified in December and then we thought it was going to be clarified in January and February and here. We are we're still a little bit ambiguous. What I will say is we do know it is a tailwind for the industry.
It helps with volume and it probably helps with margin. We just haven't really been able to figure out exactly how it's going to manifest itself in the P&L other than to say, it's going to be a good guy it'll be a good guy for core flex and it'll be a good guy for next tracker and Shannon, where we are clearly seeing alternative next tracker, we've seen already.
<unk>.
Both volte.
Volume in equipment ramps going in in North America for residential solar customers, we're seeing some pushing the EV business as a result of it also charging stations. So we are clearly putting an investment for program problems with our customers on revenue growth driven by the IRI.
So I would say that the benefit to the volume benefit we are starting to see that already in those areas outside of next tracker I'd say in terms of margin benefit I think that's where the noise still exists in terms of who exactly is going to see which part of it.
Okay. Thank you and then not to beat a dead horse here, but just on the cash return side of things. If I look at you've got three $3 3 billion of cash is that $600 million of cash flow generation. This year.
I assume youre, probably going to do a secondary once you get through.
The six month period.
About $500 million given our next sectors trading so that gets me to close to $4 $5 billion worth of cash.
I understand that you're saying that you want to buyback more stock, but why not.
Including New campaign, we're going to do a $2 billion share repurchase that we're going to be in the market. We're looking at 200 5300 a quarter.
Just to give investors and those of us trying to forecast.
And ideas of the magnitude that you're thinking thank you.
Yes, it's a great. It's a great question Shannon.
I really don't want to Dodge it. So I'll just tell you our our capital allocation priority is definitely share repo right now.
But similar to the next tracker transaction, which which we announced our intentions on that thing.
Two years and a quarter ago.
Sometimes it takes a little bit of time to fully work how are you going to operationalize things fully through the system. There are other impediments that.
The street doesn't necessarily see.
But share repo is definitely a priority for the business right now.
We will do more in Q1 than what we did in Q4 and you'll see another reauthorization following our annual shareholder meeting here in August .
So that will be a marker point, but.
We hear you and Kevin.
I think.
It just wasn't the only thing I'd add is I think investors clearly have seen how we have done.
Done well with our capital allocation strategy, our timing has been good in terms of how we have executed on this and.
So without giving very specific numbers on what and when we are going to do I think the commentary and the commitment to <unk>.
The use of cash I think is the clarity that we're providing.
And.
Without giving the exact numbers, which does it make sense at this point in time to talk about that.
That's our commitment and we have done it well in the past then I think in that change will know that.
B will be will continue to do it that way and in the next year just like we did with an extra week, our IPO, which is which is one that I think we thread the needle on that.
Great and just to clarify nothing has changed on your thoughts about next tracker should be a standalone business at some point here, though.
We.
Absolutely believe it should be a standalone business.
Okay. Thank you.
Thank you. The last question comes from Paul Chung Jpmorgan Paul. Please go ahead.
Hi, Thanks for taking my question. So just on the year you finished.
At a record here at four 8%.
You mentioned guide pointing to possibly exceeding 5%.
First time.
Youre seeing some nice.
Aside from product mix shifts so anything else you want to kind of point out that.
Maybe driving some structural uptick there.
Automation messenger and are implementing.
And where do you kind of see longer term margin targets with the portfolio today.
So Paul I'll start and then maybe Paul Lundstrom, Ken jump in I'd say, we've been consistent over the last few years. When we have talked about how margin will improve for these businesses right and we've talked about two things one is continuing to change the mix in the kinds of businesses.
We will pursue within our <unk> segment, which is a very important part of what we look to do.
So because we have said that the available market is a really large within these businesses and it's up to the business leaders. There is to move the mix. So we measure that consistently we look for bookings movement in terms of margin mix is a big part of it in terms of operation side, absolutely. Yes, we are and we have been very good at that.
Kinds of investment we make in automation. So it's not just automation for the sake of automation right. We are very very.
Prudent in terms of where we invest in automation and we have a very good futuristic plan of how our factories will look like you have seen that from the kinds of awards. We have won for manufacturing excellence. So operational efficiency is definitely driving some of the margin improvement that you've seen in the last year I would say our manifest.
<unk> plants are operating the best they've ever operated at and we expect that that will continue to improve every year because automation is improving every year. So it is from both sides, we're seeing margin improvement, Paul and I am not willing to give any new targets that we haven't already shared with you that.
Our consistent for FY 'twenty four five.
Great. Thank you for that.
And then my follow up is as you kind of move to the <unk>.
Higher margin products across healthcare auto industrial are you seeing.
More appetite for more complex product lower volume type product.
Opportunities there that come at higher margins do you expect to kind of take more share from some of the smaller EMS players here in the U S. As a result.
That kind of specialize on some of these higher hurdle rates.
Are you being more competitive is there any displacements you want to call out. Thank you.
Yes.
I don't think we are.
Its share from smaller e-commerce, but what we definitely see as each one of the little different. So for example in industrial we do a lot of more complex products that we and lower volume products that tend to be higher margin right. So youll see that play out in the industrial space.
In automotive we are seeing more complex products, which is the combination of the EV platform products that we own and the ones we make for our customers.
But those are higher volume and it's all about getting the automation right getting the footprint correct.
And make sure you stabilize that program as it ramps up so you can kind of make good margins through the cycle and help us similar to automotive that way our cloud businesses in general have been all about getting to scale very quickly and then maintaining it back way. So we can drive the efficiency and the improvement by a high level.
Automation, so I'd say it depends on the business in terms of volume.
And and mix that drives the margin I'd say industrial tends to move.
Lean towards kind of lower volume more complex products automotive is getting more complex. Our cloud is getting more complex, but theyre all higher volume also so I would say each one is a little different there's not a one size fits all.
Thank you there are no further questions Thats all the time. Please proceed.
Thank you so on behalf of the Flex leadership team I just wanted to give a thank you to all our customers and our shareholders for your support and then I want to thank the flex team across the globe for continuing to work and their dedication and contributions to the business. So thank you all thanks for joining us today.
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