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Celestica stock drops after big loss, plan to cut up to 5,500 jobs

30 January 2005

Shares in Celestica Inc. headed lower Friday, a day after the maker of electronics components posted a big quarterly loss and announced plans to cut up to 15 per cent of its global workforce, about 5,500 jobs, by early next year.

On the Toronto stock market, Celestica shares (TSX:CLS) were down 47 cents, or 2.83 per cent, to $16.13.

The latest in a series of cuts by the Toronto-based company in recent years was revealed in a financial report Thursday that said Celestica had a net loss of $810 million US, or $3.59 US per share, in the fourth quarter ended Dec. 31.

At the end of 2004, Celestica had 46,000 employees worldwide - about 85 per cent of them in "low-cost geographies" - places such as China, Mexico and Central Europe where wages are lower than in Western Europe, the United States and Canada.

Celestica - known as an electronics manufacturing services company, or EMS - has been losing money in recent years, largely due to costs to account for thousands of layoffs as it restructured its global operations in response to a prolonged slowdown in the tech sector.

The fourth-quarter loss came despite a 22 per cent year-over-year increase in revenue to $2.3 billion US in the three months ended Dec. 31, up from $1.9 billion US in the fourth quarter of 2003.

Operating profits also grew substantially in 2004, CEO Steve Delaney said in an interview.

"Overall, I'm pretty pleased, frankly," Delaney said. "We came out of a pretty tough 2003 for our company and our industry and set out plans to make major improvements."

Looking back, revenue grew by 31 per cent in 2004 over 2003 and operating profits increased every quarter, ending at 2.6 per cent of revenues by the end of the fourth quarter, he said.

"We hit that even though we saw a pretty significant slowdown in the second half of the year. So, overall, it's certainly not an easy environment. It's a tough business that we're in. But I tell you, I'm pretty proud of the team," Delaney said.

For the first quarter ending March 31, Celestica anticipates revenue will be in the range of $2 billion to $2.225 billion, and adjusted earnings per share will be between 10 cents and 18 cents per share.

Celestica's adjusted earnings is a non-standard measure of profitability that excludes a number of items contained in net earnings. In the fourth quarter, Celestica's adjusted earnings were $43.2 million US, or 19 cents per share.

The company - a 10-year-old IBM spinoff controlled by conglomerate Onex Corp. (TSX:OCX) - has closed many operations in the United States, Canada and Western Europe and shifted production to lower-cost regions.

Last April, it announced it would cut up to 5,000 jobs by early 2005, on top of a previously announced restructuring, including 700 jobs in Montreal due to a plant closing.

That left the company with about 3,000 employees at its head office and manufacturing plant in Toronto, its only remaining Canadian operations.

In its financial report, Celestica attributed the increased fourth-quarter loss, which was nearly five times as high as last-year's loss in the same period, to a number of one-time charges.

The biggest charge was a $387-million-US non-cash writedown of its assets in the Americas and European regions. It is also reducing the value of some of its tax assets by $248 million US and increased a provision for doubtful accounts by $161 million.

The fourth-quarter also included $45 million US in restructuring charges, related to previously announced operational realignments, which have resulted in the closure of numerous sites and the shift of thousands of jobs to low-cost regions.

The latest upheaval will cost the company an additional $225 million to $275 million during 2005 and involve some more plant closures, Celestica said.

The company's restructuring will include some plant closures and a 10 per cent to 15 per cent reduction of Celestica's workforce, about 5,500 employees, over the next 15 months.