BHE Q2 Deep Dive: Medical and Industrial Recovery Offset by Cautious Outlook

Electronics manufacturing services provider Benchmark (NYSE:BHE) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, but sales fell by 3.5% year on year to $642.3 million. On the other hand, next quarter’s revenue guidance of $660 million was less impressive, coming in 1.1% below analysts’ estimates. Its non-GAAP profit of $0.55 per share was 1.9% above analysts’ consensus estimates.

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StockStory’s Take

Benchmark's second quarter saw a year-over-year sales decline, which contributed to a negative market reaction, despite the company surpassing Wall Street's revenue and non-GAAP profit expectations. Management attributed the quarter's performance to double-digit growth in the semiconductor capital equipment and aerospace and defense sectors, as well as a sequential rebound in industrial and medical segments. CEO Jeffrey Benck noted, “Our value proposition is clearly resonating, and we are encouraged by our strong bookings and new deal pipeline.” The company also highlighted successful debt refinancing and cash repatriation activities.

Looking ahead, management’s guidance for the next quarter was shaped by expectations of continued sector recovery, with particular optimism in medical and aerospace and defense. However, they flagged persistent softness in semiconductor capital equipment due to ongoing trade restrictions and tariff uncertainties. CFO Bryan Schumaker emphasized, “We expect non-GAAP gross margin to be between 10.2% and 10.4%,” while noting the company’s focus on returning to positive free cash flow. The outlook is cautious, with management closely monitoring macroeconomic trends impacting customer demand.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to sector-specific recoveries, strong new business wins, and operational discipline, while pointing to external headwinds limiting overall sales growth.

• Semiconductor capital equipment momentum: Benchmark’s semi-cap segment achieved double-digit year-over-year growth, supported by recent customer wins and share gains. However, management said the broader industry recovery is taking longer than expected due to ongoing trade restrictions and tariff uncertainties, which are delaying capital spending by customers.
• Medical segment inflection: The medical business returned to sequential growth as customer inventory overhangs began to clear. CEO Jeffrey Benck explained that “for the most part, it's the base business starting to come back,” but also credited strong new bookings, including a competitive lift-and-shift program that could contribute sooner than typical cycles.
• Industrial stability and bookings: The industrial segment delivered flat revenue year-over-year but improved sequentially, driven by test and measurement demand and new engineering wins. Management highlighted a key manufacturing takeaway in instrumentation and several important engineering program awards.
• Aerospace and defense resilience: Aerospace and defense posted double-digit revenue growth, with continued strength in commercial air and defense, plus growing contributions from satellite and space applications. Management said this sector delivered “a solid quarter of bookings across manufacturing, precision technology, engineering and solutions.”
• Operational improvements and capital allocation: Benchmark refinanced its debt at favorable terms and repatriated significant cash from Asia. The company also improved its cash conversion cycle, reduced inventory days, and returned capital through dividends and share buybacks, reinforcing its focus on operational discipline and shareholder returns.

Drivers of Future Performance

Benchmark’s near-term outlook is shaped by uneven sector recoveries, with medical and aerospace expected to offset persistent headwinds in semiconductor equipment and compute.

• Medical and A&D growth drivers: Management expects medical to sustain growth as inventory issues subside and new program ramps begin. Aerospace and defense are forecasted to remain strong, benefiting from stable commercial air demand and ongoing defense spending, with additional upside from new space technology programs.
• Semi-cap and compute headwinds: Recovery in semiconductor capital equipment is likely to remain slow as customers delay spending due to trade restrictions, tariffs, and uncertain global demand. The compute segment (AC&C) is expected to see a return to growth by late this year as recent wins in AI data center and water cooling projects begin contributing.
• Operational discipline and margin focus: The company plans to maintain non-GAAP gross margin above 10% through cost controls and vertical integration, while targeting improved inventory turns and a return to positive free cash flow in the second half of the year.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace of medical segment recovery and the impact of new program ramps, (2) signs of stabilization or renewed growth in semiconductor capital equipment amid ongoing trade policy uncertainty, and (3) the contribution of recent wins in AI data center and advanced cooling to the compute segment. Progress on inventory turns and free cash flow generation will also be key performance indicators.

Benchmark currently trades at $39.68, up from $39.26 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).

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