TORONTO -- Celestica today announced first-quarter revenue fell 8% year-over-year to $1.32 billion, as lower order volumes cut about $85 million from the firm's topline revenue.

The contract electronics manufacturer swung to a net loss of $3.2 million for the period ended Mar. 31, down from net income of $90.3 million last year. The current results included $8 million in restructuring charges.

Advanced Technology Solutions segment revenue, which represents 41% of total revenue, decreased 5%, and the operating margin was 2.7%, up 10 basis points. Connectivity & Cloud Solutions segment revenue, which makes up 59% of revenue, fell 10%. The segment margin rose to 3% from 2.3% a year ago, primarily due to improved mix, including increased JDM programs, and productivity initiatives. The ATS segment consists of aerospace and defense (A&D), industrial, energy, healthtech, and capital equipment businesses (semiconductor, display, and power & signal distribution equipment). The CCS segment consists of communications and enterprise (servers and storage) end-markets.

Overall operating margin rose 50 basis points to 2.9%. Free cash flow was $53.8 million, compared to $144.7 million last year, which included $113 million in proceeds from the sale of the company's Toronto property.

The EMS provider's global network is operating at approximately 80% to 85% of normal workforce levels.

"In the first quarter, Celestica achieved improved year-over-year non-IFRS operating margin and segment margins, generated robust free cash flow and paid down long-term debt," said Rob Mionis, president and CEO, Celestica. "Although revenue came in lower than originally expected due to the challenging environment created by Covid-19, these metrics reflect our team's impressive performance through adversity." 

In response to materials constraints related to Covid-19, Celestica purchased additional materials in the first quarter to help mitigate current and future shortages. "We continue to be actively engaged with our supply base in an attempt to secure required materials, but we anticipate that material constraints resulting from Covid-19 will continue in the second quarter," Mionis said.

The company declined to provide financial guidance for the second quarter, citing uncertainty tied to Covid-19, but said it currently anticipates results will be largely in line with the first quarter, provided conditions remain essentially as they are now.

Increases in ATS margin were primarily driven by improvements in the CE business, which returned to profitability in the single-digit million dollar range, partly offset by operational inefficiencies in A&D, which was hurt by materials shortages exacerbated by Covid-19) and the halt of the Boeing 737 Max program. Celestica said materials constraints will continue to adversely impact the business, and Covid-19 effects could lead to volume delays or reductions in other commercial programs. Defense programs are expected to pick up, and the firm is expanding one of its Atrenne facilities to accommodate additional defense capacity.

Demand from semiconductor capital equipment customers improved from the second half of 2019. Celestica expects some previously anticipated demand growth will be deferred to later periods as a result of Covid-19. A shift from LCD to OLED technology, driven by 5G smartphones that predominantly use OLED screens, will hamper the display end-market, with modest demand recovery anticipated in late 2020.

Industrial felt a modest demand reduction compared to the prior-year period. Healthtech is seeing demand increases for diagnostic and treatment products, which more than offset Covid-19-related demand reductions in surgical products.

The decrease in CCS segment revenue reflects continuing demand softness from certain communications customers (some due to Covid-19), and the loss of Cisco, partly offset by strength in joint design and manufacturing (JDM). "We expect adverse market dynamics in our communications end-market, including as a result of Covid-19, to continue into thre second quarter," Mionis said.

"Our disengagement from programs with Cisco is progressing as planned, and we continue to expect the transition, including associated restructuring actions, to be largely complete by the end of 2020. There was no revenue impact from the Cisco disengagement in the first quarter," he added.

Restructuring charges in 2020 associated primarily with the Cisco disengagement will be lower than the previously anticipated $30 million, but additional restructuring actions will be taken this year to adjust the cost base in response to shifting demand. Celestica now expects total restructuring charges in 2020 will exceed $30 million, but declined to give an estimate. 

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