Benchmark Electronics Navigates Mixed Market with Strategic Growth

Benchmark Electronics ((BHE)) has held its Q4 earnings call. Read on for the main highlights of the call.

Benchmark Electronics’ Recent Earnings Call Reveals Mixed Sentiment Amidst Market Challenges

The recent earnings call from Benchmark Electronics illustrated a company navigating through a landscape of mixed market conditions with an impressive operational execution. While the company has achieved notable success in margin expansion and growth in specific sectors, it continues to face significant challenges in areas such as Medical and AC&C. Despite a decline in overall revenue, the company’s strategic investments, particularly in Semi-Cap, highlight a positive outlook.

Strong Margin Expansion and Cash Flow

Benchmark Electronics reported solid progress in margin expansion, with non-GAAP gross margin increasing by 60 basis points and operating margin by 20 basis points year-over-year. The company successfully generated over $156 million in free cash flow for the year, significantly reducing inventory by over $130 million or 20%, showcasing strong financial management.

Semi-Cap and A&D Growth

The company experienced substantial growth in its Semi-Cap and Aerospace & Defense (A&D) sectors. Semi-Cap revenue saw an 18% year-over-year increase in Q4 and 12% for the full year, bolstered by new wins and share gains. Similarly, A&D revenue grew by 15% in Q4 and 20% for the full year, driven by robust demand in Commercial Aerospace and Defense.

Operational and Financial Stability

Despite encountering mid-single-digit revenue declines, Benchmark maintained operational strength, with non-GAAP EPS surpassing guidance. The company improved its cash conversion cycle and reduced debt by $22 million in the quarter, underscoring its financial stability.

Expansion Plans in Penang

Benchmark is planning to expand its operations in Penang, Malaysia, by breaking ground on a fourth building to support the growth in the Semi-Cap sector. This move reflects the company’s confidence in future demand and the potential for new program wins.

Revenue Declines in Medical and AC&C

The company faced revenue declines in its Medical and AC&C sectors, with Medical revenue decreasing by 7% year-over-year in Q4 and 19% for the full year. This was attributed to inventory rebalancing and demand weakness. AC&C revenue also fell by 48% in Q4 and 30% for the full year, primarily due to HPC program completions and continued softness in communications.

Overall Revenue Decline

Total revenue for fiscal year 2024 was reported at $2.7 billion, marking a 6% decline from the previous year. This reflects the challenges faced across several market sectors, contributing to the overall revenue drop.

Mixed Market Recovery

Despite positive growth in certain sectors, the broader market recovery is uneven, with ongoing challenges expected to persist in Complex Industrials and AC&C into the first half of 2025.

Forward-Looking Guidance

Looking ahead, Benchmark Electronics provided guidance for the first quarter of fiscal year 2025. The company expects revenue to range between $620 million and $660 million, with a non-GAAP gross margin between 10% and 10.2%. Non-GAAP SG&A expenses are projected to be between $34 million and $36 million, and the non-GAAP operating margin is expected to be between 4.5% and 4.7%. Non-GAAP diluted earnings per share are anticipated to range from $0.48 to $0.54. Additionally, the company plans to invest significantly in CapEx, particularly in the new Penang building.

In conclusion, Benchmark Electronics is strategically navigating through a challenging market landscape with a focus on operational excellence and strategic investments. While facing revenue declines in certain areas, the company’s strong margin expansion, cash flow generation, and growth in sectors like Semi-Cap and A&D offer a positive outlook. The company’s forward-looking guidance reflects cautious optimism for the upcoming fiscal year.