Celestica Inc. stock hit a 2½-year high Wednesday after the company announced its first acquisition in three years, the latest move in a multiyear strategy by chief executive officer Rob Mionis to revive investor interest in the Canadian contract electronics manufacturer that was last a high-flier in the dot-com boom.
The Toronto company said it would buy Singapore-based PCI Ltd. from owner Platinum Equity for US$306-million in cash. PCI is a fully integrated design, engineering and manufacturing services provider with five facilities across Asia, and is on track to generate US$325-million in revenue this year. Celestica said the addition of PCI would improve its financial results, starting with an immediate increase to the parent company’s earnings in the first year.
Celestica stock jumped 17.25 per cent on the news, closing at $12.10 on the Toronto Stock Exchange. That’s still more than $5 lower than when Mr. Mionis became CEO of the onetime IBM operation on Aug. 1, 2015, long after it had been the jewel of the Onex Corp. empire.
Since then, Mr. Mionis has led the company on a methodical, long-term strategy to improve its financial and operational picture. He’s moved Celestica more into higher-margin, higher-skilled work in such areas as semi-conductor equipment, aerospace and health technologies, completed two acquisitions and cut costs.
In a key move, Celestica has “disengaged” from US$1.25-billion in non-strategic, low-margin revenue, notably by getting out of the business of making equipment for Cisco Systems Inc. Last year, Celestica increased earnings per share by 80 per cent over 2019 levels and improved gross margins, and it has posted positive organic growth from existing customers outside of the Cisco business.
“The past year, we progressed our focus from transformation to optimization and as we head into 2022, we’ll be in the final stage of our journey – the growth phase,” Mr. Mionis said in an interview. “Celestica is stronger than it’s ever been, financially and operationally. We’re really poised to unlock a lot of shareholder value.”
Until Wednesday, however, Celestica stock was an underperformer, lagging rivals Flex Ltd. and Jabil Inc.
“I’m certainly disappointed that our company performance has disconnected from our share price,” Mr. Mionis said, speaking just before the market opened. “However, I do believe that over time and continued strong execution, the market will recognize our performance and this will drive improved shareholder returns.”
BMO Capital Markets analyst Thanos Moschopoulos said Celestica for years has produced “quite lacklustre” earnings growth, noting that the company’s earnings in 2020 were lower than in 2012. But he said with its exit from the Cisco business and presence in higher-growth areas, “they’re now growing enough to offset issues in other parts of the business.”
He added that PCI “is a higher-margin business, it’s more specialized and sticky and less prone to commoditization than some other segments. It’s exactly the kind of thing they’ve been looking to add.”
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Sean Silcoff