Celestica Q2 Earnings Call Highlights

Key Points

• Record Q2 performance: Revenue rose 62% year over year to $4.70 billion and adjusted EPS increased 83% to $2.54, driven by strong AI infrastructure and networking demand. Adjusted operating margin reached a company-record 8.2%.
• Raised outlook and accelerating AI pipeline: Celestica lifted its 2026 revenue forecast to $20.5 billion and adjusted EPS outlook to $11.30, while expecting 2027 growth to exceed 2026 levels. The company cited hyperscaler AI/ML programs, AMD racks and an OpenAI custom-rack opportunity as major growth drivers.
• Capacity expansion remains essential: Component availability is the company’s primary constraint as demand exceeds reported revenue capacity. Celestica plans approximately $1 billion in 2026 capital expenditures and is expanding facilities in Thailand, Japan and Texas to support upcoming program ramps.

Celestica NYSE: CLS reported second-quarter 2026 revenue and adjusted earnings per share above the high end of its guidance, supported by demand for AI infrastructure and networking programs. The company also raised its full-year outlook and said it expects revenue growth to accelerate in 2027.

Second-quarter revenue reached $4.70 billion, up 62% from a year earlier, while adjusted EPS rose 83% to $2.54. Non-GAAP operating margin expanded 80 basis points to a company record of 8.2%.

“These results reflect strong operational execution across both segments, alongside record demand from our CCS customers,” Chief Executive Officer Rob Mionis said. He cited technology upgrade cycles in networking and AI compute, as well as significant programs expected to launch in the second half of 2026 and into 2027.

CCS Growth Led by Networking and AI Compute

Celestica’s Connectivity & Cloud Solutions, or CCS, segment generated $3.81 billion in quarterly revenue, a year-over-year increase of 84%. The segment represented 81% of total company revenue and posted an 8.7% margin, up 40 basis points, as higher volumes produced operating leverage.

Communications end-market revenue increased 62%, exceeding the company’s outlook for roughly 50% growth. Chief Financial Officer Mandeep Chawla said the increase was primarily driven by 800G networking switch programs, with continued demand for 400G programs.

Enterprise end-market revenue climbed 167%, also ahead of guidance, driven by an accelerated ramp of a hyperscaler AI and machine-learning compute program and stronger storage demand. Celestica’s hardware platform solutions, or HPS, business contributed $1.9 billion in revenue, up 58%, as 800G switch programs ramped across multiple hyperscale customers.

For the third quarter, Celestica expects communications revenue growth of approximately 60%, including demand for 800G programs and the start of mass-production ramps for its first 1.6-terabit programs. Enterprise revenue is expected to rise about 190% on continued hyperscaler AI/ML compute demand and improved storage demand.

Mionis said the company has 10 active 1.6T programs and expects those programs to gain momentum in 2027, while 800G and 400G products continue to grow. A co-packaged optics program is expected to begin sampling in the first half of 2027 and enter mass production in the second half of that year, he said.

ATS Segment Returns to Faster Growth

Advanced Technology Solutions, or ATS, revenue increased 8% to $888 million, above the company’s outlook for a mid-single-digit percentage gain. Revenue grew across each of the segment’s businesses, and ATS accounted for 19% of Celestica’s total quarterly revenue.

ATS margin rose 100 basis points to 6.3%, supported by operating leverage and a higher engineering-driven product mix. The company expects ATS revenue to increase in the mid-teens percentage range in the third quarter, primarily due to capital equipment demand and new program ramps.

For the full year, Celestica now expects ATS revenue to rise approximately 10%. Mionis said growth is accelerating in the second half, led by sequential improvement in the capital equipment business, where the company anticipates wafer-fab equipment demand tailwinds will continue into 2027.

Company Raises 2026 Outlook, Sees Faster 2027 Growth

Celestica raised its 2026 revenue outlook to $20.5 billion from $19 billion, implying 65% growth, and increased its adjusted EPS forecast to $11.30 from $10.15. The company now expects full-year adjusted operating margin of 8.4%, up from its prior 8.1% outlook, and free cash flow of $600 million, compared with prior guidance of $500 million.

Third-quarter revenue is projected to range from $5.25 billion to $5.55 billion, with adjusted EPS expected between $2.88 and $3.08. At the midpoint, that guidance implies revenue growth of 69% and adjusted EPS growth of 89% from the prior-year period.

The company said it expects 2027 revenue growth to exceed the 65% rate now anticipated for 2026, while adjusted EPS growth is expected to outpace revenue growth as operating margins expand. Mionis attributed the outlook to stronger AI/ML compute demand, increasing demand for next-generation AMD racks and a higher base of networking demand, including 800G products.

Celestica also disclosed that it expects to begin initial deliveries of custom racks for OpenAI later in 2026. Mionis said Celestica will work with OpenAI and Broadcom on multigenerational custom accelerator roadmaps, starting with the Jalapeno accelerator, which is planned for mass production in 2027.

Management described both the OpenAI opportunity and AMD Helios scale-up platform as multibillion-dollar opportunities in 2027. Chawla said the OpenAI program is expected to have the dynamics of a consigned program, meaning material costs would not flow through Celestica’s reported revenue.

Capacity Investments and Supply Chain Planning

Celestica generated $147 million in free cash flow during the quarter and $285 million year to date. Capital expenditures totaled $264 million, or 5.6% of revenue, and the company maintained its full-year capital expenditure outlook of approximately $1 billion.

Inventory rose to $3.4 billion, reflecting planned scaling for CCS growth and upcoming program ramps. Cash cycle days improved to 47, down 19 days from a year earlier and eight days sequentially.

At quarter-end, the company had $536 million in cash and $740 million in gross debt, for net debt of $204 million. It reported approximately $2.3 billion in available liquidity, including its recently upsized revolver.

Management said component availability remains the primary constraint, although it believes its 2026 commitments and 2027 outlook are appropriately hedged. Chawla said demand exceeds the revenue figures Celestica has provided, but material availability limits production. The company is expanding capacity in Thailand, Japan and Texas, with investments underway in Richardson and Fort Worth.

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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