AQR Capital Begins a Position in Flextronics International



AQR Capital’s holdings in Flextronics International

AQR Capital commenced a position in Flextronics International (FLEX) by purchasing 12,894,621 shares of the company. FLEX represented 0.3% of the fund’s 4Q14 portfolio.


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An overview of Flextronics International

Flextronics International offers advanced design, manufacturing, and services to original equipment manufacturers (or OEMs). The companys one of the world’s largest purveyors of global supply chain solutions.

FLEX’s strategy is to provide customers with a range of cost-competitive, vertically integrated global supply chain solutions. The company can design, build, ship, and service complete packaged products for its OEM customers.

Flextronics has four business groups:

  • High Reliability Solutions (or HRS) includes medical, automotive, defense, and aerospace businesses.
  • The Consumer Technology Group (or CTG) includes a business for mobile devices like smartphones; a business for consumer electronics like game consoles and wearable gadgets; and high-volume supply chain solutions for notebooks, personal computers, tablets, and printers.
  • Industrial and Emerging Industries (or IEI) includes business for household appliances, semi-cap equipment, kiosks, and energy and emerging industries.
  • Integrated Network Solutions (or INS) includes businesses for telecommunications infrastructure, data networking, and connected homes, servers, and storage.

FLEX has an 0.45% exposure in the iShares Morningstar Mid Value ETF (JKI). The company also makes up 0.15% of the Vanguard Information Technology ETF (VGT). Apple (AAPL), in which AQR Capital has increased its holdings, is a part of VGT as well.

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Fiscal 3Q15 financial results

Flextronics reported revenues of $7.03 billion for the three months ending December 31, 2014. This was 2.1% lower than the $7.18 billion in revenues for the prior-year period.

The slight drop in sales was attributable to $0.2-billion and $0.3-billion decreases in the INS and CTG business groups, respectively. These business groups generated lower sales due to a softening of the mobile, computing device, and telecom businesses.

The IEI business group experienced a $0.2-billion increase in revenues due to growth in the energy and household appliances businesses. There was a 0.1-billion increase in revenues for the HRS business group owing to higher sales to medical and automotive customers.

Adjusted earnings per share (or EPS) rose to $0.30 for 4Q14, up from $0.26 during the prior-year period. Flextronics had free cash flow of $337 million in 4Q14 and $1.8 billion in net working capital.

Along with record liquidity levels, FLEX has no debt with near-term maturities. The company has a debt-to-equity (or DE) ratio of 0.9x, while peer Jabil Circuit (JBL) has a DE ratio of 0.7x.

2014 acquisitions

During the nine-month period ended December 31, 2014, Flextronics completed four acquisitions. According to the company’s quarterly report, these acquisitions were not significant for FLEX’s consolidated financial statements. The company expects the acquired businesses to expand its capabilities in the medical device market, specifically in the area of precision plastics.

In the next part of this series, we will discuss AQR Capital’s dropped position in Shire (SHPG).


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