April 22, 2010 / 11:30 AM / in 8 years

UPDATE 3-Celestica profit higher, sees revenue rising

* Q1 adj EPS $0.19 vs $0.15 a year earlier

* Growth rate, bigger inventory worries market

* Stock reverses morning losses, up 1.2 pct

* CEO sees closing two health care deals in second half (Updates with CEO comments from interview, stock price. In U.S. dollars unless noted)

By Susan Taylor

OTTAWA, April 22 (Reuters) - Contract electronics maker Celestica Inc (CLS.TO) (CLS.N) posted stronger quarterly profits and sales on Thursday and said it is on track to increase revenue by 6 percent to 8 percent this year.

Celestica, whose biggest customer is BlackBerry-maker Research In Motion Ltd RIM.TO, said its financial results and forecast reflect a “gradually improving economy” and success in winning new business. Last year, revenue fell 21 percent.

It said it had a 7 percent sequential increase in inventory that was tied to shifts in customer demand and would not hurt sales.

“The earnings essentially met forecast for this quarter and next and management held firm to a better back half of the year, which, for owners of Celestica, should be viewed as a positive,” said Longbow Research analyst Shawn Harrison.

“The market is proceeding with caution, to an extent, in that Celestica isn’t growing as fast as its peers ... and all the EMS (electronics manufacturing services) providers that build inventory are being scrutinized to a large degree to make sure that growth isn’t getting ahead of itself.”

Some electronics manufacturers have forecast double-digit growth for the year, Harrison said.

Shares of Celestica, spun off from International Business Machines Corp in 1996, fell by more than 2 percent in morning trade before reversing direction to a 1.2 percent gain. They ended up 13 Canadian cents at C$10.55 on the Toronto Stock Exchange.

The company said it is in a growth phase and plans to use its cash cushion to expand.

After paying $149.7 million in the quarter to complete its purchase of long-term notes, the company had $712 million in cash, no debt and an undrawn $200 million credit facility.

The company expects to close two acquisitions in the health care sector, potentially worth up to $100 million each, in the second half of the year, Chief Executive Craig Muhlhauser said in an interview with Reuters [ID:nN22250722].

Celestica also plans to launch a big expansion of its green technology manufacturing in late 2010 or early 2011. Muhlhauser said there is a significant opportunity with the province of Ontario’s generous feed-in-tariff program, which has a local content quota for renewable energy projects.

Celestica, one of the five largest contract electronics manufacturers in the world by revenue, said first-quarter net profit rose to $25.9 million, or 11 cents a share, from $19.2 million, or 8 cents a share, a year earlier.

Adjusted earnings rose to $43.1 million, or 19 cents a share, from $33.6 million, or 15 cents a share.

Revenue rose 3 percent to $1.52 billion.

Analysts had expected earnings of 19 cents a share, on revenue of $1.54 billion, according to Thomson Reuters I/B/E/S.

A 3.4 percent operating margin was the strongest first-quarter result in more than eight years, Celestica said.

For the second quarter, the company forecast adjusted earnings of 19 cents to 23 cents a share and revenue of $1.5 billion to $1.6 billion. Analysts had estimated earnings at 21 cents a share and revenue at $1.57 billion.

The company expects ongoing strength in the consumer market, particularly for smartphones, in the second half of 2010.

$1=$1 Canadian Reporting by Susan Taylor, with reporting by Bhaswati Mukhopadhyay in Bangalore; editing by Peter Galloway

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