Celestica (CLS) Down 12.4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Celestica (CLS). Shares have lost about 12.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Celestica due for a breakout? Well, first let's take a quick look at its latest earnings report in order to get a better handle on the recent catalysts for Celestica, Inc. before we dive into how investors and analysts have reacted as of late.

CLS Q2 Earnings Beat Estimates on Strong CCS Demand, Outlook Raised

Celestica reported second-quarter 2026 adjusted earnings of $2.54 per share, up 82.7% year over year and ahead of the Zacks Consensus Estimate of $2.29 by 10.9%. Revenues jumped 62.4% to $4.70 billion and surpassed the consensus mark of $4.35 billion by 8.1%.

Robust momentum in the Connectivity & Cloud Solutions (CCS) business remained the primary growth driver. CCS revenues surged 84% year over year, reflecting sustained strength in data center infrastructure demand, while management raised its 2026 outlook and now expects revenue growth to accelerate further in 2027.

CLS Delivers Another Quarter of Margin Expansion

GAAP net earnings climbed to $368.8 million, or $3.17 per share, from $211 million, or $1.82 per share, in the year-ago quarter. Higher revenues and improved operating leverage continued to support profitability.

GAAP earnings from operations increased to $458.3 million from $272.5 million a year earlier. Operating margin improved to 9.8% from 9.4%.

Celestica Margins Improve on Better Mix

Adjusted operating earnings increased to $386.3 million from $214.7 million in the second quarter of 2025. Adjusted operating margin expanded to a record 8.2% from 7.4%, reflecting stronger operating leverage and favorable business mix as revenue scaled sharply.

Adjusted earnings rose to $2.54 per share from $1.39 in the year-ago quarter, exceeding the Zacks Consensus Estimate of $2.29. Management attributed the better-than-expected profitability to stronger-than-anticipated operating leverage, while the adjusted effective tax rate was 20%, slightly below its prior expectation of approximately 21% due to a favorable profit mix.

Celestica's CCS Business Drives Growth

Connectivity & Cloud Solutions revenues increased 84% year over year to $3.81 billion. Segment margin improved to 8.7% from 8.3%, reflecting favorable operating leverage and stronger execution as demand from hyperscale data center customers remained robust.

Hardware Platform Solutions revenues reached approximately $1.9 billion, increasing 58% from the prior-year period. Management attributes second-quarter 2026 revenue exceeding the high end of guidance to higher-than-anticipated customer demand and strong operational execution.

CLS ATS Business Improves Profitability

Advanced Technology Solutions revenues rose 8% year over year to $890 million, marking a steadier performance than the rapidly expanding CCS segment.

Despite the more modest sales growth, ATS segment margin improved to 6.3% from 5.3% a year earlier, reflecting stronger execution across its Aerospace and Defense, Industrial, HealthTech and Capital Equipment businesses. The segment continued to contribute to the company's overall margin expansion during the quarter.

Celestica Invests for Future Capacity

Cash provided by operating activities increased to $410.9 million from $152.4 million in the year-ago quarter, supported by stronger earnings despite higher working capital requirements tied to rapid growth.

Capital expenditures rose, with purchases of property, plant and equipment totaling $263.8 million. As a result, free cash flow reached $147.1 million compared with $119.9 million a year earlier. Cash and cash equivalents stood at $535.7 million at quarter end, while long-term borrowings under the credit facility and finance lease obligations totaled $784 million.

CLS Raises Guidance After Strong First Half

For the third quarter of 2026, Celestica expects revenues between $5.25 billion and $5.55 billion. Adjusted earnings are projected in the range of $2.88 to $3.08 per share, while adjusted operating margin is expected to be 8.4% at the midpoint of the revenue and adjusted earnings guidance ranges.

Management also increased its 2026 outlook, citing stronger customer forecasts and improved component supply. The company now expects revenues of $20.5 billion, up from its previous outlook of $19 billion, adjusted earnings of $11.30 per share versus the prior forecast of $10.15, adjusted operating margin of 8.4% compared with 8.1% previously, and free cash flow of $600 million versus the earlier expectation of $500 million. Celestica also said it expects revenue growth in 2027 to accelerate beyond the approximately 65% growth anticipated for 2026, with adjusted earnings projected to grow faster than revenues.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Celestica has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock has a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Celestica has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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This article originally published on Zacks Investment Research (zacks.com).

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