TORONTO -- Celestica today announced second quarter revenue rose 3% year-over-year to $1.49 billion, beating expectations.

For the quarter ended Jun. 30, the net profit was $13.3 million, up from a loss was $6.1 million last year.

 Pretax profit was $21 million versus a loss was $1 million a year ago. Return on invested capital rose to 5.4% from -0.2% in 2019. Income from operations rose to $30.1 million from $11.6 million. Overall operating margin rose 90 basis points to 3.4%. Free cash flow was $37.9 million, compared to $46.5 million in 2019.

"Celestica delivered strong revenue growth and improved non-IFRS operating margin, paid down long-term debt, and continued to generate robust non-IFRS free cash flow in the second quarter," said Rob Mionis, president and CEO, Celestica.

Celestica noted Covid-19 impacted demand to an undisclosed degree during the period. It sustained an aggregate adverse revenue impact of $56 million resulting from Covid-19-related materials constraints. Covid-19-related costs incurred were approximately $18 million, comprised of direct and indirect costs, including manufacturing inefficiencies related to lost revenue due to the inability to secure materials, and idle labor costs resulting from shelter-in-place orders and manufacturing capacity restrictions, as well as incremental direct costs for labor, expedite fees and freight premiums, costs for cleaning supplies and personal protective equipment, and IT-related costs to support work-from-home arrangements. The costs were largely offset by an aggregate of $16 million in government subsidies and customer recoveries recognized in the period.

Advanced Technology Solutions segment revenue, which makes up represented 34% of total revenue, decreased 11% from a year ago. Segment margin rose 30 basis points to 3.1%. Connectivity & Cloud Solutions segment revenue increased 12%, while the margin gained 120 basis points to 3.6%. ATS consists of aerospace and defense (A&D), industrial, energy, healthtech, and capital equipment (semiconductor, display, and power and signal distribution equipment). CCS consists of servers and storage equipment.

Strong demand in the capital equipment business and new program ramps in healthtech were more than offset by demand weakness in commercial aerospace and industrial businesses, mainly due to the impact of Covid-19, and the production slow-down of the Boeing 737 Max. Capital equipment was also responsible for most of the margin gains in the ATS segment. Defense business demand was stable. Materials constraints are continuing but improving and will continue to impact A&D and industrial results. Healthtech benefited from new program ramps, with strong demand for diagnostic and "point of care" equipment, along with modest improvement in the demand for elective surgical products.

Demand from semiconductor CE customers improved and is expected to remain strong in the second half, offset in part by a soft near-term display market, as capacity expansion projects are delayed, largely driven by weak demand for smartphones. Productivity initiatives, including repositioning the majority of display programs to the EMS firm's South Korea facility, combined with an expanded customer base, put Celestica in position to operate this business more effectively.

Celestica saw increased demand from service providers, which more than offset revenue declines from its ongoing disengagement with Cisco and the impact of Covid-19. It expects near-term continued growth from the JDM business.

The EMS company's global network was operating at approximately 95% of normal workforce levels at quarter's end.

"We expect adverse market dynamics in our A&D, industrial and display businesses related to Covid-19, and additionally with respect to our A&D business, delays in the Boeing 737 Max returning to service, to continue into Q3 2020 and subsequent periods," Mionis said.

Celestica said restructuring charges in connection with its disengagement from Cisco will be lower than originally anticipated, and it intends to take additional restructuring actions in 2020 to adjust its cost base in response to shifting demand, due in part to the impact of Covid-19. It expects total restructuring costs in 2020 will be approximately $30 million, in part to right-size commercial aerospace facilities and industrial business in response to the ongoing reductions in demand.

Register now for PCB West Virtual 2020, the leading conference and exhibition for the printed circuit board industry, coming this September. pcbwest.com

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