Celestica Gains From Robust Cash Flow: Will the Trend Continue?

Celestica, Inc. CLS reported an operating cash flow of $152.4 million in the second quarter, up from $99.6 million reported in the year-ago quarter. The 52.6% surge was driven by multiple factors. 

In its Connectivity & Cloud Solutions segment, the company witnessed a staggering 82% year-over-year surge in net sales from its HPS (Hardware Platform Solutions) business. The impressive growth is driven by the growing adoption of 800G switches. Demand for 400G switches also remained strong among hyperscaler customers. 

In the second quarter, inventory balance was $1.92 billion, up $74 million from the year-ago quarter and up $130 million from the prior quarter. Cash cycle days were 66 days, down sequentially from 69 days in the first quarter of 2025, while slightly up from 64 days in Q2 2024. A cash cycle indicates the average time it takes to convert inventory goods into cash through sales. Celestica’s strong revenue growth, combined with a stable cash cycle, indicates that cash is not held up unduly in excess inventory. 

The company reported a free cash flow of 119.9 million in the second quarter compared with $65.6 million in the prior-year quarter. Its capital expenditure stood at $33 million, 1.1% of the revenue and well below the company’s projected 1.5-2% of the revenue range. On the back of an improved profit outlook, Celestica has raised its guidance for free cash flow to $400 million from $350 million for 2025. 

Healthy revenue growth stemming from the growing proliferation of AI-based applications and generative AI tools across industries, a focus on margin expansion, combined with disciplined working capital management, is expected to drive cash flow.

How are Competitors Faring?

The company faces stiff competition from Jabil, Inc. JBL and Flex Ltd. FLEX. Jabil generated $406 million in cash from operations during the third quarter. The company generated $1.05 billion in free cash flow in fiscal 2024. Backed by efficient financial management practices, optimum utilization of assets, and improved operational efficiency, Jabil is well on track to achieve $1.2 billion free cash flow target in fiscal 2025.

Flex is driving free cash flow generation through a combination of disciplined capital expenditure, efficient working capital management. In fiscal 2025, the company reached a record high of $1.1 billion in free cash flow. In the first quarter of fiscal 2026, the company generated an adjusted free cash flow of $268 million. Flex continues to expect to generate robust free cash flow and uphold its target of more than 80% free cash flow conversion.

Celestica's Price Performance, Valuation and Estimates

Celestica shares have gained 322.2% over the past year compared with the industry’s growth of 117.9%.

From a valuation standpoint, Celestica trades at a forward price-to-earnings ratio of 31.9, higher than the industry average.

The Zacks Consensus Estimate for Celestica’s earnings for 2025 has increased 9.9% in the past 60 days.

Celestica currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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