Celestica (CLS) Exceeds Q2 Expectations, Raises 2025 Outlook on Strong Connectivity & Cloud Solutions Demand
Celestica (CLS) reported robust second-quarter 2025 financial results, significantly surpassing analyst estimates and raising its full-year guidance, driven primarily by exceptional growth in its Connectivity & Cloud Solutions (CCS) segment amid strong demand for AI infrastructure.
Celestica (CLS), a global provider of electronics manufacturing services, announced impressive financial results for the second quarter of 2025, substantially exceeding consensus estimates for both earnings and revenue. The company also revised its full-year 2025 outlook upwards, a move largely propelled by the vigorous performance of its Connectivity & Cloud Solutions (CCS) segment, reflecting burgeoning demand in the Artificial Intelligence (AI) infrastructure market.
Q2 2025 Performance Overview
For the second quarter ended July 2025, Celestica reported non-GAAP net earnings of $1.39 per share, outperforming the Zacks Consensus Estimate by $0.15. Quarterly revenues reached $2.89 billion, marking a 21% increase year-over-year and surpassing the Zacks Consensus Estimate by $223 million. On a non-GAAP basis, adjusted earnings per share (EPS) surged 54% year-over-year. The company also achieved a record adjusted operating margin (non-GAAP) of 7.4%, exceeding its own guidance, and generated $119.9 million in non-GAAP free cash flow, an 83% increase from the prior year period.
Segmental Growth and Strategic Drivers
The Connectivity & Cloud Solutions (CCS) segment emerged as a primary growth engine, with its revenue increasing 28% year-over-year to $2.07 billion in Q2 2025. This segment is now projected to achieve approximately 30% growth for the full year 2025. A significant contributor within CCS was the Hardware Platform Solutions (HPS) sub-segment, which recorded an 82% year-over-year revenue increase, reaching $1.2 billion in the quarter. The HPS sub-segment now accounts for 43% of Celestica's total sales, a substantial rise from 8% in the prior year.
This robust expansion is attributed to heightened demand for networking products from hyperscale customers, who are aggressively expanding their data center infrastructure to support new AI applications. The accelerated ramp-up of 800G networking switches has been a notable factor, with volumes reaching parity with 400G programs in Q2, and further outperformance anticipated. While the Advanced Technology Solutions (ATS) segment demonstrated moderate and stable growth, it is projected to remain largely flat for 2025 compared to the more rapid acceleration seen in CCS.
Market Reaction and Broader Context
Following the release of these strong financial results, Celestica's stock recorded a 1.85% gain on the day of the announcement, closing at $170.22. The company's shares have experienced a remarkable rally, advancing approximately 344% since March 2024. This sustained momentum underscores the market's positive response to Celestica's strategic shift towards an Original Design Manufacturer (ODM) model and its pivotal role in the burgeoning AI infrastructure market.
Expert commentary from analysts suggests that despite the significant stock appreciation, Celestica shares may still be undervalued, with some price targets indicating potential upside of 16-17% towards $226. This perspective is underpinned by the company's strong margin expansion and a conservative 0.9x debt-to-EBITDA ratio.
> "Celestica's rally is justified by strong margin expansion, driven by the high-growth, high-margin HPS sub-segment, now 43% of sales and rising."
However, some market observers note an increase in volatility in recent weeks, suggesting that while the long-term outlook remains positive, new investments at current elevated price levels may carry increased risk.
Outlook and Key Watchpoints
Celestica has demonstrated confidence in its future performance by significantly raising its full-year 2025 guidance across all key metrics:
Revenue: Increased to approximately $11.55 billion (from a prior estimate of $10.85 billion).
Non-GAAP Adjusted EPS: Raised to $5.50 per share (from $5.00).
Adjusted Operating Margin (non-GAAP): Revised up to 7.4% (from 7.2%).
Non-GAAP Free Cash Flow: Boosted to $400 million (from $350 million).
For the third quarter of 2025, the company projects revenue to range between $2.875 billion and $3.125 billion, with adjusted EPS expected to be between $1.37 and $1.53. Key factors to monitor in the coming quarters include the continued strength and growth within the CCS segment, particularly the ongoing ramp-up of multiple 800G program ramps.
Furthermore, the Enterprise sub-segment within ATS is anticipated to strengthen in the second half of 2025, with a next-generation AI/ML compute program involving a major hyperscaler slated to commence mass production in Q3 2025. Celestica's ongoing manufacturing footprint expansion is also a significant development, potentially adding $3-4 billion in additional revenue capacity, positioning the company for continued growth in the rapidly evolving technology landscape.
