(Adds comments from CEO/CFO interview, fund manager’s comment. In U.S. dollars unless noted)
By Susan Taylor
OTTAWA, April 24 (Reuters) - Contract electronics maker Celestica Inc (CLS.TO)CLS.N said on Thursday it returned to a first-quarter profit, beating analysts’ expectations, as lower costs and restructuring charges offset a slight drop in revenue.
Restructuring efforts in 2007, the seventh such program since 2001, are paying off with improved profit margins, executives said. Celestica now expects to reach its long-time operating margin target of 3 percent to 3.5 percent in the second half of 2008.
“We spent the last year getting our act together,” Chief Executive Craig Muhlhauser said on a conference call. “We are very encouraged by the progress we’re making.”
The company, which makes consumer electronics such as Microsoft Corp’s (MSFT.O) Xbox 360 video-game console, said it earned $29.8 million, or 13 cents a share, in the three months ended March 31. That compares with a loss of $34.3 million, or 15 cents a share, in the same period a year earlier.
Analysts expected profit of 8 cents a share before one-time items on revenue of $1.83 billion, according to Reuters Estimates.
Adjusted profit was 15 cents a share, compared with a loss of 4 cents, beating a company forecast in January.
“Certainly this is a substantially better report than anybody was expecting, but also better than its peers,” said Duncan Stewart, president of Stewart Asset Management.
Shares roared higher on Thursday, up 34 percent to C$8.90 on the Toronto Stock Exchange, where it was the No. 2 percentage gainer. The stock also rose 29.5 percent in New York to $8.74.
Revenue dipped to $1.836 billion from $1.842 billion, meeting a company target of $1.7 billion to $1.9 billion.
Celestica recorded a $3.3 million charge for closing plants and ongoing job cuts, versus an $8 million charge last year.
Quarterly results also benefited from a 2 cent per share currency gain, lower taxes and operating costs and big improvements at its troubled operations in Mexico and Europe.
Despite lower revenue, the loss in Europe was 70 percent smaller than the same period last year, while Mexico stopped losing money and broke even.
For its second quarter, Celestica sees adjusted earnings of 13 cents to 19 cents, and revenue of $1.8 billion to $2 billion. Operating margins are forecast at about 2.9 percent.
Analysts had expected second-quarter earnings of 11 cents a share and sales of $1.95 billion.
Senior executives told Reuters that Celestica is done with restructuring and wants to expand its higher-profit services business, which today makes up less than 10 percent of sales.
It has tried unsuccessfully to tap this market in previous years, but said it is now better focused.
“In the past we’ve had some false starts, where we’ve tried to design our own products and essentially took on an undue amount of risk and that’s not something we’re going to do,” Chief Financial Officer Paul Nicoletti told Reuters.
“We’re working collaboratively with our customers more on joint design initiatives and we’ve seen some early success.”
The Toronto-based company, whose customers also include computer giants IBM (IBM.N) and Hewlett-Packard (HPQ.N), said it will be conservative with its $1.15 billion in cash, and will invest in sectors of its business where it will turn a profit.
$1=$1.02 Canadian Additional reporting by Jonathan Spicer; Editing by Peter Galloway