Electronics manufacturing services company Sanmina (NASDAQ:SANM) reported Q4 CY2024 results beating Wall Street’s revenue expectations, with sales up 7% year on year to $2.01 billion. On the other hand, next quarter’s revenue guidance of $1.95 billion was less impressive, coming in 2.1% below analysts’ estimates. Its non-GAAP profit of $1.44 per share was 5.1% above analysts’ consensus estimates.
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Sanmina (SANM) Q4 CY2024 Highlights:
- Revenue: $2.01 billion vs analyst estimates of $1.98 billion (7% year-on-year growth, 1.5% beat)
- Adjusted EPS: $1.44 vs analyst estimates of $1.37 (5.1% beat)
- Revenue Guidance for Q1 CY2025 is $1.95 billion at the midpoint, below analyst estimates of $1.99 billion
- Adjusted EPS guidance for Q1 CY2025 is $1.35 at the midpoint, below analyst estimates of $1.42
- Operating Margin: 4.4%, in line with the same quarter last year
- Free Cash Flow Margin: 2.3%, down from 4.9% in the same quarter last year
- Market Capitalization: $4.56 billion
"We delivered solid first quarter financial results, with revenue towards the high end and non-GAAP earnings per share exceeding our outlook. We continue to execute well, as evident in our consistent operating margin and cash generation," stated Jure Sola, Chairman and Chief Executive Officer of Sanmina Corporation.
Company Overview
Founded in 1980, Sanmina (NASDAQ:SANM) is an electronics manufacturing services company offering end-to-end solutions for various industries.
Electrical Systems
Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Sanmina struggled to consistently increase demand as its $7.7 billion of sales for the trailing 12 months was close to its revenue five years ago. This fell short of our benchmarks and is a sign of poor business quality.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Sanmina’s recent history shows its demand has stayed suppressed as its revenue has declined by 4.9% annually over the last two years. 
This quarter, Sanmina reported year-on-year revenue growth of 7%, and its $2.01 billion of revenue exceeded Wall Street’s estimates by 1.5%. Company management is currently guiding for a 6.3% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 8.4% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and suggests its newer products and services will fuel better top-line performance.
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Operating Margin
Sanmina was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.5% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.
Analyzing the trend in its profitability, Sanmina’s operating margin might have seen some fluctuations but has generally stayed the same over the last five years, which doesn’t help its cause.
In Q4, Sanmina generated an operating profit margin of 4.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Sanmina’s EPS grew at a solid 10% compounded annual growth rate over the last five years, higher than its flat revenue. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.
Diving into the nuances of Sanmina’s earnings can give us a better understanding of its performance. A five-year view shows that Sanmina has repurchased its stock, shrinking its share count by 23.1%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings. 
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Sanmina, its two-year annual EPS declines of 1.4% mark a reversal from its (seemingly) healthy five-year trend. We hope Sanmina can return to earnings growth in the future.
In Q4, Sanmina reported EPS at $1.44, up from $1.30 in the same quarter last year. This print beat analysts’ estimates by 5.1%. Over the next 12 months, Wall Street expects Sanmina’s full-year EPS of $5.42 to grow 15.8%.
Key Takeaways from Sanmina’s Q4 Results
It was good to see Sanmina narrowly top analysts’ revenue expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its revenue and EPS guidance for next quarter fell short of Wall Street’s estimates. Overall, this quarter was mixed. The stock traded up 2.5% to $80.60 immediately after reporting.
Big picture, is Sanmina a buy here and now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.