What Celestica (CLS) Said on Its Q3 Earnings Call

Key Points

• Record Q3 performance: Celestica’s revenue rose 83% year over year to $5.83 billion, while adjusted EPS increased 109% to $3.30. AI-driven demand lifted both CCS and ATS, with CCS revenue growing 102% on strong networking, compute, and storage demand.
• Higher growth outlook: The company raised its 2026 revenue forecast to $21 billion and expects $40 billion in 2027 revenue, alongside adjusted EPS of $21.50. Management cited continued hyperscaler AI infrastructure investment, including expanding 1.6T networking, custom compute, and rack-scale programs.
• Heavy investment ahead: Celestica plans to spend $1.5 billion to $2 billion on capital expenditures in 2027 and expects working-capital needs to result in negative cash flow that year. Capacity expansions are planned across Texas, Thailand, Mexico, Japan, and Malaysia to support awarded AI-related programs.

Celestica NYSE: CLS reported third-quarter 2026 revenue of $5.83 billion, up 83% from a year earlier and above the high end of its guidance range, as demand for AI infrastructure lifted results across its Connectivity & Cloud Solutions and Advanced Technology Solutions segments.

Adjusted earnings per share rose 109% year over year to $3.30, while non-GAAP operating margin expanded 90 basis points to a record 8.5%. The company said adjusted return on invested capital reached 64.7%, up about 27 percentage points from the prior-year period.

“We are seeing unprecedented momentum positioning us for a strong end to 2026 and further acceleration into 2027,” Chair and Chief Executive Officer Rob Mionis said during the company’s earnings call and investor day presentation.

Cloud and Networking Demand Drives Growth

Revenue from the company’s Connectivity & Cloud Solutions, or CCS, segment rose 102% to $4.9 billion and represented 84% of total revenue. Within CCS, networking revenue increased 68%, supported by 800G networking deployments, early volumes from 1.6T programs and demand for 400G products.

Compute and storage revenue climbed 242%, driven by hyperscale AI compute program ramps and stronger-than-expected storage demand. Celestica’s Hardware Platform Solutions business generated $2.3 billion in quarterly revenue, a 70% increase, reflecting ramps of 1.6T and 800G switch programs across multiple hyperscaler customers.

The company renamed its former communications end market as Networking and its enterprise end market as Compute and Storage. Celestica said the change is only a naming update and does not alter the composition of the businesses or prior reported results.

Advanced Technology Solutions, or ATS, revenue increased 23% to $957 million. The company attributed the growth primarily to an acceleration in capital-equipment demand, along with higher demand in its other ATS businesses.

• CCS non-GAAP operating margin was 8.9%, up 60 basis points.
• ATS segment margin was 6.6%, up 110 basis points.
• Three customers each represented at least 10% of revenue, accounting for 35%, 17% and 14%, respectively.

Fourth-Quarter and Full-Year Outlook Raised

For the fourth quarter, Celestica projected revenue of $6.275 billion to $6.575 billion, which would represent 76% year-over-year growth at the midpoint. Adjusted EPS is expected to be between $3.37 and $3.57, representing 84% growth at the midpoint.

The company expects fourth-quarter networking revenue to rise about 65%, with growth led by hyperscaler 800G programs and ramping 1.6T products. Compute and storage revenue is forecast to grow about 160%, driven by hyperscaler AI compute and storage demand. ATS revenue is expected to increase in the low-20% range.

Celestica increased its 2026 revenue outlook to $21 billion from $20.5 billion and raised its adjusted EPS outlook to $11.55 from $11.30. The company maintained its forecast for a full-year adjusted operating margin of 8.4%.

However, it reduced its 2026 free-cash-flow outlook to $460 million from $600 million, citing targeted working-capital investments to support its accelerating growth outlook for 2027. Inventory reached $4.5 billion at the end of the third quarter, up $1.1 billion sequentially, as the company built inventory for expected demand.

Company Targets $40 Billion in 2027 Revenue

Celestica forecast 2027 revenue of $40 billion, a 90% increase from its updated 2026 outlook. It expects full-year non-GAAP operating margin of 9%, up 60 basis points, and adjusted EPS of $21.50, an 86% increase.

The outlook assumes approximately 110% growth in CCS revenue and about 10% growth in ATS revenue. Chief Financial Officer Todd Ankenmann said revenue is expected to be meaningfully higher in the second half of 2027 as multiple large-scale programs ramp.

Celestica expects 2027 capital expenditures of $1.5 billion to $2 billion to support programs already awarded. The company said its 2027 investments in capital expenditures and working capital would result in net cash usage for the year, though Ankenmann said it is targeting a return to positive cash flow in 2028 based on its current view.

At the end of the third quarter, the company held approximately $4 billion in cash and had gross debt of $736 million, resulting in net cash of $3.2 billion. During the quarter, Celestica completed a public offering of approximately 11.1 million shares, generating $3.45 billion in gross proceeds before expenses.

Investment Focus Shifts Toward AI Systems and Capacity

At its investor day, Celestica outlined plans to expand engineering resources, manufacturing capacity and automation capabilities to support AI networking, compute and rack-scale systems. The company expects annual R&D spending to exceed $300 million in 2027 and expects its HPS engineering team to grow from more than 1,600 engineers to more than 2,000 next year.

Steven Dorwart, president of Connectivity and Cloud Solutions, said 2026 networking revenue is expected to reach $11.8 billion, up 66%, while compute and storage revenue is projected to reach $5.6 billion, up 170%.

The company expects 1.6T networking revenue to surpass 800G revenue in 2027 as 1.6T deployments accelerate. It also cited planned ramps in custom AI compute programs, including Google TPU platforms and OpenAI’s Jalapeño platform, which Celestica said is expected to begin production ramping in 2027.

Management said the company is expanding capacity in Texas, Mexico, Thailand, Japan and Malaysia, with investments directed toward liquid-cooled AI racks, networking systems, automation and increased power availability. Mionis said the company’s design, commercialization and manufacturing capabilities are intended to position Celestica as a long-term partner for hyperscalers and frontier AI labs.

About Celestica (NYSE:CLS)

Celestica Inc is a global provider of design, manufacturing, and supply chain solutions for original equipment manufacturers and other technology companies. The company helps customers develop, produce, and support complex hardware and integrated systems across their product life cycles.

Its services include product design and engineering, electronics and mechanical manufacturing, systems integration, testing, supply chain management, logistics, and after-market support. Celestica serves markets such as communications, enterprise and cloud computing, aerospace and defense, industrial technology, health technology, and capital equipment.

Headquartered in Toronto, Canada, Celestica operates a global network of manufacturing, engineering, and supply chain facilities serving customers in North America, Europe, and Asia.

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