Benchmark Electronics Q4: Margin Gains Amid Mixed Demand

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

Benchmark Electronics Balances Solid Q4 Beat With Cautious 2026 Outlook

Benchmark Electronics’ latest earnings call struck a tone of cautious optimism: management highlighted clear operational progress in the fourth quarter, including stronger revenue, an EPS beat, expanding margins, robust cash generation, and healthy bookings in faster-growing markets like aerospace, medical, and AI-related computing. At the same time, executives acknowledged ongoing headwinds from a sluggish semiconductor capital equipment cycle, flat full‑year revenue, modest operating margin pressure, and a step‑up in capital spending as the company invests to support newly won programs.

Q4 Revenue Growth and EPS Beat

Benchmark delivered a stronger-than-expected fourth quarter, with revenue rising 7% year over year to $704 million. Non‑GAAP EPS came in at $0.71, comfortably ahead of the company’s prior guidance range of $0.62–$0.68. The beat underscores better execution and mix in the quarter despite macro uncertainty and sector-specific softness, providing a solid exit rate heading into 2026.

Margin Expansion and Operating Leverage

Profitability improved meaningfully in Q4 as higher volumes and mix drove operating leverage. Non‑GAAP gross margin reached 10.6%, expanding 50 basis points sequentially and 20 basis points versus last year. Non‑GAAP operating margin climbed to 5.5%, up 70 basis points sequentially and 40 basis points year over year. Management framed these gains as evidence that the business can translate incremental revenue into stronger margins even in a mixed demand environment.

Full-Year Earnings Growth on Flat Revenue

For the full fiscal year 2025, revenue was essentially unchanged at $2.66 billion, yet Benchmark grew non‑GAAP EPS by 5% to $2.40. This marks the fifth consecutive year in which earnings growth has outpaced the top line. The trend suggests continued discipline on cost, pricing, and mix management, though it also highlights the reality that broader end-market demand has not yet returned to robust growth.

Sector Strength in Aerospace, Medical, and Advanced Computing

Growth in key secular markets provided a bright spot in the quarter. Aerospace and defense revenue rose 7% sequentially and 17% year over year in Q4, finishing the year up 19%. The medical segment accelerated even faster, with Q4 revenue up 14% sequentially and 23% year over year, and 7% growth for the full year. Meanwhile, the advanced computing and communications business rebounded sharply, with Q4 revenue jumping 22% sequentially and 27% year over year, supported by rising activity around AI-related ramps. These areas now form the backbone of Benchmark’s higher-growth portfolio.

Bookings Momentum and Strategic Capacity Investments

Management emphasized strong bookings across space, MedTech, and enterprise AI, reinforcing the company’s pivot toward higher-value, higher-complexity work. To support this pipeline, Benchmark is expanding its global precision manufacturing footprint. A fourth facility in Penang is slated to be completed in the second quarter and become operational by the third quarter, alongside targeted spending on production equipment tailored to new program wins. These investments are designed to position the company for multi‑year growth rather than just near-term gains.

Robust Cash Generation and Working Capital Discipline

Benchmark’s cash performance was another key positive. In Q4, the company generated $59 million of operating cash flow and $48 million of free cash flow, contributing to full‑year free cash flow of $85 million. The balance sheet ended the year in a net cash positive position of $111 million, with total cash of $322 million, up $36 million sequentially. Working capital management improved notably, with the cash conversion cycle down to 67 days—10 days better than the prior quarter and 22 days better than a year ago—giving the company more flexibility to fund growth and shareholder returns.

Shareholder Returns and Capital Allocation Strategy

Alongside its growth investments, Benchmark continued to return cash to shareholders. Over the year, the company paid $24 million in dividends and repurchased $27 million of its own shares, with $123 million still available under its existing repurchase authorization. Management reiterated a balanced capital allocation approach: maintain and grow the dividend, opportunistically buy back stock, and continue investing in facilities and technologies that support long-term customer programs.

Semi Cap Weakness and 2025 Headwinds

The semiconductor capital equipment segment remained a drag on performance. Semi cap revenue fell 8% sequentially and 14% year over year in Q4, pressured by a softer spending environment and lingering effects from China import restrictions. For the full year, semi cap managed only 2% growth, and management acknowledged that the timing of a broader recovery is tied to customer visibility and industry capacity cycles. This softness, combined with a challenging first half in advanced computing & communications and flat industrial demand, kept overall full‑year revenue from growing.

Flat Revenue and Mixed Sector Performance for the Year

Despite strong contributions from aerospace, defense, and medical, total revenue for fiscal 2025 was flat compared with the prior year. The advanced computing & communications segment, while rebounding in Q4, experienced a weak first half and posted a full‑year decline. Industrial demand improved in the second half but was roughly flat for the year. This uneven sector performance illustrates how Benchmark’s exposure to cyclical markets can offset strength in structurally growing segments.

Slight Pressure on Full-Year Operating Margins

While Q4 margins improved, full‑year profitability showed modest compression. Non‑GAAP operating margin for the year came in at 4.9%, down 20 basis points from the prior year, primarily due to higher variable compensation. The slight decline suggests that incentive-related costs and a flat revenue base limited operating leverage at the annual level, even as the company exited the year on a stronger quarterly margin profile.

Tax Adjustments and Facility Impairment

Benchmark also addressed one-off accounting items. The company identified immaterial errors in prior tax calculations, resulting in an $8.7 million increase in cumulative income tax expense, though with no impact on cash. In addition, it recorded an $11.1 million non‑cash impairment related to an Arizona facility tied to a program reaching end-of-life. Management framed these as clean-up and portfolio rationalization items rather than signals of broader business weakness.

CapEx and OpEx Rising With New Program Ramps

As bookings convert into production, Benchmark expects a near-term increase in both capital expenditures and operating expenses. CapEx totaled about $39 million in fiscal 2025, including $11 million in Q4, and management now anticipates spending at 2–2.5% of revenue, up from a historical range of roughly 1.5–2%. The higher spend reflects investments in new capacity—particularly the Penang expansion—and supporting infrastructure, which will temporarily absorb cash but is intended to underpin future growth and margin expansion once new programs mature.

Q1 2026 EPS and Margin Guidance Below Q4 Levels

The company’s near-term guidance reflects both seasonality and the cost of ongoing investments. For the first quarter of 2026, Benchmark expects non‑GAAP operating margin of 4.7–4.9%, below the 5.5% achieved in Q4, and non‑GAAP EPS of $0.53–$0.59, also down sequentially. Management noted that as demand shifts across programs and new capacity comes online, quarterly margin and earnings can be volatile, even as the overall trajectory remains positive.

Forward-Looking Guidance and Outlook

For Q1 2026, Benchmark guided revenue to a range of $655–$695 million, implying about 7% year‑over‑year growth at the midpoint. Non‑GAAP gross margin is projected between 10.4% and 10.6%, with non‑GAAP operating margin expected in the 4.7–4.9% band. The company anticipates non‑GAAP diluted EPS of $0.53–$0.59, alongside a tax rate in the mid‑20s and a share count near 36.3 million. Management remains cautiously optimistic, pointing to mid‑single‑digit revenue growth expectations, a potential recovery in semi cap in 2026, and growing exposure to structural growth markets like aerospace, medical, and AI-related systems. Still, they signaled that 2026 will be a year of continued investment and only gradual margin improvement rather than a sharp rebound.

In summary, Benchmark Electronics ended the year on a strong operational note, beating Q4 expectations, expanding margins, and generating solid cash while growing earnings despite flat revenue. Strength in aerospace, defense, medical, and AI-related computing is partially offsetting softness in semi cap and other cyclical areas, and the company is deploying capital into new facilities and equipment to support a growing backlog of higher-value programs. For investors, the story is one of disciplined execution and prudent balance sheet management, with near-term earnings choppiness as the company spends ahead of an anticipated upturn, particularly in semiconductor-related markets.