Electronics manufacturing services company Sanmina (NASDAQ:SANM) fell short of analysts' expectations in Q2 CY2024, with revenue down 16.6% year on year to $1.84 billion. Next quarter's revenue guidance of $1.95 billion also underwhelmed, coming in 3.9% below analysts' estimates. It made a GAAP profit of $0.91 per share, down from its profit of $1.28 per share in the same quarter last year.
Revenue: $1.84 billion vs analyst estimates of $1.86 billion (1.1% miss)
EPS: $0.91 vs analyst expectations of $0.95 (4.2% miss)
Revenue Guidance for Q3 CY2024 is $1.95 billion at the midpoint, below analyst estimates of $2.03 billion
EPS (non-GAAP) Guidance for Q3 CY2024 is $1.35 at the midpoint, below analyst estimates of $1.45
Gross Margin (GAAP): 8.3%, in line with the same quarter last year
Free Cash Flow of $44.46 million, similar to the previous quarter
Market Capitalization: $4.12 billion
"We delivered third quarter results in line with our outlook. We are starting to see stabilization and demand improve going into our fourth quarter, and we expect to see growth in fiscal 2025," stated Jure Sola, Chairman and Chief Executive Officer.
Founded in 1980, Sanmina (NASDAQ:SANM) is an electronics manufacturing services company offering end-to-end solutions for various industries.
Electrical Systems
Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Sanmina's demand was weak over the last five years as its sales fell by 2.4% annually, a rough starting point for our analysis.
Sanmina Total Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Sanmina's annualized revenue growth of 1.9% over the last two years is above its five-year trend, but we were still disappointed by the results.
This quarter, Sanmina missed Wall Street's estimates and reported a rather uninspiring 16.6% year-on-year revenue decline, generating $1.84 billion of revenue. The company is guiding for a 5% year-on-year revenue decline next quarter to $1.95 billion, an improvement from the 7.8% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 10.9% over the next 12 months, an acceleration from this quarter.
Sanmina was profitable over the last five years but held back by its large expense base. It demonstrated lousy profitability for an industrials business, producing an average operating margin of 4.4%. This result isn't too surprising given its low gross margin as a starting point.
On the bright side, Sanmina's annual operating margin rose by 1.2 percentage points over the last five years
Sanmina Operating Margin (GAAP)
This quarter, Sanmina generated an operating profit margin of 4.5%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPS
Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Sanmina's EPS grew at a decent 9.5% compounded annual growth rate over the last five years, higher than its 2.4% annualized revenue declines. This tells us management adapted its cost structure in response to a challenging demand environment.
Sanmina EPS (GAAP)
We can take a deeper look into Sanmina's earnings to better understand the drivers of its performance. As we mentioned earlier, Sanmina's operating margin was flat this quarter but expanded by 1.2 percentage points over the last five years. On top of that, its share count shrank by 21.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Sanmina Diluted Shares Outstanding
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Sanmina, its two-year annual EPS growth of 6.4% was lower than its five-year trend. We hope its growth can accelerate in the future.
In Q2, Sanmina reported EPS at $0.91, down from $1.28 in the same quarter last year. This print missed analysts' estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Sanmina to grow its earnings. Analysts are projecting its EPS of $3.86 in the last year to climb by 37.4% to $5.30.
Key Takeaways from Sanmina's Q2 Results
We struggled to find many strong positives in these results. Its EPS missed and its revenue guidance for next quarter fell short of Wall Street's estimates. Overall, this was a bad quarter for Sanmina. The stock traded down 5.9% to $71.08 immediately after reporting.
