Celestica Q4 Earnings Call Highlights

Celestica (NYSE:CLS) reported what executives called “very strong” fourth-quarter results for fiscal 2025, driven primarily by growth in its Connectivity & Cloud Solutions (CCS) segment across communications and enterprise end markets. Management said both revenue and adjusted earnings per share exceeded the high end of the company’s guidance, while adjusted operating margin of 7.7% marked the strongest performance in company history.

Fourth-quarter and full-year results

For the fourth quarter, Celestica posted revenue of $3.65 billion, up 44% year over year and above the high end of its guidance range. Non-GAAP operating margin was 7.7%, up 90 basis points, and adjusted EPS was $1.89, up $0.78, or 70%, also exceeding the top end of guidance.

Additional quarterly metrics highlighted on the call included adjusted gross margin of 11.3% (up 30 basis points), an adjusted effective tax rate of 19%, and adjusted return on invested capital (ROIC) of 43%, up 14 percentage points versus the prior year.

For the full year 2025, CEO Rob Mionis said the company delivered revenue of $12.4 billion and adjusted EPS of $6.05, representing growth of 28% and 56%, respectively. Adjusted operating margin was 7.5%, which management said reflected the second consecutive year of 100 basis points of improvement, driven by AI-related demand for data center technologies, operational execution, and operating leverage.

Segment performance: CCS growth offsets ATS softness

Chief Financial Officer Mandeep Chawla said CCS revenue in the quarter rose 64% to $2.86 billion and represented 78% of total company revenue. Growth was driven by “very solid” performance in both communications and enterprise end markets.

• Communications end market: Revenue increased 79%, above guidance for high-60s% growth, primarily driven by demand and ramping programs for 800G networking switches across the company’s largest hyperscaler customers.
• Enterprise end market: Revenue increased 33%, above guidance for a low-20s% increase, driven by an accelerating ramp of a next-generation AI/ML compute program with a large hyperscaler customer.
• HPS business: Generated $1.4 billion of revenue, up 72% and representing 38% of total company revenue, driven by ramping volumes in 800G switch programs with multiple hyperscaler customers.

By contrast, revenue in the Advanced Technology Solutions (ATS) segment was $795 million, down 1% and in line with expectations for a low-single-digit decline. Chawla attributed the decline to lower volumes in the capital equipment business and previously communicated portfolio reshaping in aerospace and defense, partially offset by stronger demand in other end markets. ATS represented 22% of total revenue for the quarter.

Margins improved in both segments. ATS segment margin was 5.3%, up 70 basis points, which management tied primarily to improved profitability in aerospace and defense. CCS segment margin was 8.4%, up 50 basis points, attributed to operating leverage.

Capital spending ramps sharply as bookings and visibility improve

One of the most significant updates from the call was Celestica’s plan to substantially increase capital expenditures in 2026 and 2027. Chawla said that since the company’s Investor and Analyst Day in October, Celestica has continued long-term capacity planning discussions with key CCS customers. The company now expects 2026 capex of approximately $1 billion, or about 6% of its current annual revenue outlook, compared with $201 million in total capex during 2025 (1.6% of revenue).

Management described the increased investment as a response to record bookings, accelerating growth in existing engagements, and improved demand visibility with hyperscaler customers. The plan includes capacity additions at existing sites, customer-driven investments in the U.S., and upgrades to manufacturing capabilities including power.

Chawla detailed several location-specific initiatives, including major investments in Texas and Thailand. In Texas, Celestica is expanding its Richardson campus and building a new site in Fort Worth, adding more than 700,000 square feet with expanded power availability, expected to come online in 2027. The company also plans to establish a new HPS design center in Austin. In Thailand, Celestica is adding more than 1,000,000 square feet of footprint and upgrading capabilities including expanded power, advanced liquid cooling manufacturing, and testing, with new capacity expected toward the end of 2026 and into 2027. The company also cited upgrades and retooling in other locations, including Mexico and Japan, and announced plans for a new HPS design center in Taiwan.

Executives emphasized that the capex program is based on “booked business.” In response to questions about risk management, Mionis said the build-out supports programs already in development and validation, with “very little risk” in those programs materializing. Chawla said the company expects to fully support the increase in capex through operating cash flow, maintaining a full-year free cash flow outlook of $500 million.

2026 guidance raised; Q1 outlook calls for continued acceleration

Celestica issued guidance for the first quarter of 2026 and raised its full-year 2026 outlook. For Q1, the company projects revenue of $3.85 billion to $4.15 billion, implying 51% growth at the midpoint. Adjusted EPS is expected to be $1.95 to $2.15, representing 71% growth at the midpoint. Non-GAAP operating margin is expected to be 7.8% at the midpoint, up 70 basis points, with an adjusted effective tax rate of approximately 21%.

For the full year 2026, Mionis said Celestica is raising its outlook to $17 billion in revenue and $8.75 in adjusted EPS, representing year-over-year growth of 37% and 45%, respectively. The company maintained its free cash flow outlook of $500 million.

During Q&A, management addressed investor questions regarding implied growth deceleration later in the year. Chawla said customer forecasts for 2026 are higher than the $17 billion guidance, but the company is taking a pragmatic approach beyond the next couple of quarters due to supply considerations and macro uncertainties, adding that Celestica is “working towards a higher number” and will update as the year progresses.

Networking roadmap and hyperscaler programs

Management repeatedly pointed to demand from hyperscalers for networking and AI compute systems. Mionis said CCS segment revenue is expected to grow approximately 50% for full-year 2026, supported by communications demand for 800G programs, “highly resilient” 400G volumes, and expected mass production ramps for initial 1.6T switching programs in the latter part of the year.

The company also announced it has secured a design and manufacturing award for a 1.6T networking switch platform with a third hyperscaler customer, with production expected to begin in 2027 and design work already underway. In another Q&A exchange, management said there are 10 active 1.6T programs in the pipeline, with about five expected to start ramping in the back half of 2026 and into 2027.

Mionis also spoke about Celestica’s long-standing relationship with Google, describing the company as a preferred manufacturing partner for Google’s TPU systems and saying the partnership is “stronger or more integrated” than ever. Executives clarified that Celestica is not sole-sourced on TPU programs, noting hyperscalers typically maintain a second source for business continuity, but said Celestica remains a primary source and expects to support increased demand through Google’s supply chain.

Looking ahead, management said customer visibility is extending into 2027 and, for some customers, into 2028, with Celestica increasingly viewed “less as a supply chain partner and more as a technology leader.”

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.