Celestica NYSE: CLS reported a strong start to fiscal 2026, posting first-quarter revenue above $4 billion and delivering what management described as record profitability metrics for the company. On the company’s Q1 2026 earnings call, executives pointed to accelerating demand from hyperscaler customers, a strengthening outlook in its Advanced Technology Solutions (ATS) segment, and a growing backlog and pipeline that prompted an increase to full-year guidance.
First-quarter results: revenue up 53%, margins reach new high
Chief Financial Officer Mandeep Chawla said first-quarter revenue rose 53% year over year to $4.05 billion, “driven by very strong demand” in the Connectivity & Cloud Solutions (CCS) segment. Non-GAAP operating margin increased 90 basis points to 8.0%, while adjusted EPS was $2.16, up 80% from the prior year and above the company’s guidance range.
Chawla reported adjusted gross margin of 11.3%, up 30 basis points, citing improved mix and productivity. The adjusted effective tax rate was 19%. He also highlighted an adjusted return on invested capital of approximately 50%, up more than 18 percentage points versus the prior year.
Segment performance driven by hyperscaler networking and AI/ML compute ramps
CCS generated $3.24 billion of revenue, up 76% and representing 80% of total company revenue. Within CCS:
- Communications revenue increased 69%, which Chawla attributed primarily to “strong demand and ramping programs for 800G networking switches across our largest hyperscaler customers.”
- Enterprise revenue increased 101%, driven by a planned ramp of a next-generation AI/ML compute program with a hyperscaler customer, though Chawla said the result was “modestly lower” than the company’s outlook due to “select component constraints” that partially gated timing.
Celestica’s Hardware Platform Solutions (HPS) business generated $1.7 billion of revenue, up 63% and representing 42% of company revenue, driven by 800G switch ramps with multiple hyperscaler customers.
ATS revenue was $806 million, flat year over year and better than Celestica’s expectation of a low-single-digit decline. Chawla said the result reflected higher HealthTech revenue, offset by comparisons tied to portfolio reshaping in aerospace and defense and softness in capital equipment. ATS represented 20% of total revenue.
On profitability, ATS segment margin improved 100 basis points to 6.0% on mix and portfolio optimization, while CCS segment margin increased 60 basis points to 8.6% on mix and operating leverage.
Cash flow, capital spending, and liquidity
Celestica generated $138 million of free cash flow in the quarter. Capital expenditures were $230 million, or 5.7% of revenue, and Chawla reiterated full-year 2026 capex guidance of approximately $1 billion, aimed at enabling CCS growth and supported by “awarded programs” and “multi-year capacity alignment with our key customers.”
Inventory ended the quarter at $2.67 billion, up $485 million sequentially, which management tied to supporting CCS growth. Cash cycle days improved to 55, better by 14 days year over year.
Celestica ended Q1 with $378 million in cash and $719 million of gross debt, for net debt of $341 million. After quarter end, the company amended its credit facility, increasing its revolver by $1 billion to $1.75 billion and extending maturities on the term loan A and revolver to 2031. Chawla said the revolver and cash balance together provide more than $2 billion of available liquidity.
The company also repurchased approximately 73,000 shares for $20 million during the quarter under its Normal Course Issuer Bid.
Guidance: Q2 outlook and raised 2026 targets
For the second quarter, Chawla guided revenue to $4.15 billion to $4.45 billion and adjusted EPS to $2.14 to $2.34. At the midpoint, management expects 49% revenue growth and 61% adjusted EPS growth, with non-GAAP operating margin again at 8.0%. The adjusted effective tax rate is expected to be approximately 21%.
By end market, Celestica expects:
- ATS revenue up mid-single digits, aided by HealthTech and industrial ramps and a “return to growth” in capital equipment.
- CCS communications growth of about 50%, driven by ongoing 800G ramps and continued strength in 400G programs.
- CCS enterprise growth of about 130%, supported by continued AI/ML compute ramping and rising storage volumes.
President and CEO Rob Mionis said the company is raising its full-year 2026 outlook, citing a strengthening demand pipeline and better visibility. Celestica increased expected 2026 revenue to $19 billion from $17 billion and lifted its adjusted EPS outlook to $10.15 from $8.75. The company also raised its adjusted operating margin outlook to 8.1% from 7.8% while reaffirming its $500 million free cash flow outlook, which includes the planned $1 billion in capex.
Mionis said CCS is expected to grow about 70% in 2026. He acknowledged supply conditions remain “highly dynamic,” noting extended lead times and constraints in some advanced components, but said the company’s guidance reflects “a measured assessment of component availability.”
Programs, product transitions, and supply constraints shape 2027 commentary
Management repeatedly emphasized that customer demand has strengthened over the past 90 days and that the company’s outlook for 2027 improved. Chawla told analysts that with programs already won, Celestica expects to “grow significantly more” than the roughly $6.5 billion increase embedded in its 2026 outlook, adding that “the floor would be somewhere around $25.5 billion,” while noting the company will provide more specificity later in the year.
On networking, Mionis said Celestica expects to begin mass production on 1.6T switch programs with two hyperscaler customers in the second half of 2026. He also described a “landmark program award” to design and manufacture a 1.6T co-packaged optics (CPO) Ethernet switch with a hyperscaler customer, with mass production expected to commence in the second half of 2027. Mionis said it is an existing customer and “we don’t feel it cannibalizes the current programs,” adding that demand for existing programs is increasing.
Mionis also highlighted a collaboration announced in March with AMD on the design and manufacturing of a scale-up networking switch for the Helios Rack-Scale AI architecture. He said development is underway, samples will ship this year, and initial units are expected to be available by year-end, while describing the broader market as “multi-billion dollar.”
On the enterprise side, management reiterated that an AI/ML compute program continues to scale through 2026 and into 2027, and that a “digital native” rack-scale program remains on track. In response to a question from BMO Capital Markets, Mionis said Celestica will ship sample systems this year and expects production to begin in late Q1 2027.
Supply availability remained a central topic in Q&A. Mionis said component shortages are more pronounced than 90 days ago, with constraints including custom silicon and memory, as well as challenges in high-layer-count PCBs, power components, and optical components. However, he said Celestica has supplier commitments to support the company’s outlook, calling guidance “prudent” and “conservative,” and added that longer lead times are providing “unprecedented visibility” into customers’ end demand.
On visibility and planning, Mionis said customers and the supply chain have aligned around constraints and capacity plans, with some awards already extending into 2028. He added that many orders are supported by NCNR terms, which he said provide contractual protections.
Looking beyond 2026, Chawla said capex is expected to remain elevated in 2027, offering “a rough number of $1.5 billion as a placeholder for now,” with capacity investments primarily in Southeast Asia—“Thailand specifically”—and in the U.S., “Texas specifically.”
About Celestica NYSE: CLS
Celestica Inc is a multinational electronics manufacturing services (EMS) company that provides design, engineering, manufacturing and supply chain solutions to original equipment manufacturers across a range of industries. Headquartered in Toronto, Ontario, Canada, Celestica works with customers to develop and produce complex electronic and electro-mechanical products, integrating activities from product design and prototyping through high-volume assembly, testing and final system integration.
The company's service offering typically includes product engineering and design support, printed circuit board assembly, box-build and systems assembly, automated test and inspection, aftermarket repair and refurbishment, and end-to-end supply chain and logistics management.
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