Sanmina Corporation (SANM) — FY2022 Form 10-K
Reporting period: Fiscal year ended October 1, 2022 (52 weeks). This is an annual filing; it does not provide a standalone fourth-quarter results summary. Sanmina provides electronics manufacturing, components, products and services to OEMs. Integrated Manufacturing Solutions (IMS) accounted for about 80% of FY2022 revenue; Components, Products and Services (CPS) accounted for about 20%.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $7.890 billion | $6.757 billion | +16.8% |
| Gross profit / margin | $640.5 million / 8.1% | $551.8 million / 8.2% | Profit +16.1%; margin down 0.1 percentage point |
| Operating income / margin | $367.8 million / 4.7% | $281.3 million / 4.2% | Income +30.8%; margin up 0.5 point |
| Net income | $256.1 million | $269.0 million | -4.8% |
| Diluted EPS | $4.06 | $4.01 | +1.2% |
| Cash from operations | $330.9 million | $338.3 million | -2.2% |
| Capital expenditures (cash basis) | $138.6 million | $73.3 million | Nearly doubled |
Revenue rose in both reported end markets: Industrial, Defense, Medical and Automotive increased 21.2% to $4.715 billion; Communications Networks and Cloud Infrastructure increased 10.8% to $3.176 billion. Management attributed growth to stronger demand, new programs and passing through most component-cost increases. IMS gross margin rose to 7.2% from 7.1%; CPS gross margin fell to 11.9% from 12.7%, primarily due to less favorable business mix. Overall gross margin edged lower despite higher sales.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $529.9 million at year-end, down from $650.0 million. Working capital was approximately $1.5 billion.
- Operating cash flow was pressured by working-capital investment: inventory increased $663 million and contract assets increased $155 million, partly offset by higher accounts payable and accrued liabilities. Inventory turns fell to 4.9 from 6.3, while days inventory on hand rose to 74 from 58.
- Year-end debt carrying value was approximately $346.7 million, including a $350 million term loan before issuance costs. A new facility provides an $800 million revolving line, with $791 million available after letters of credit; no revolver borrowings were outstanding. The term loan matures in 2027 and bears floating-rate interest, partly hedged by $350 million of swaps. Sanmina reported covenant compliance.
- Sanmina repurchased 8.0 million shares for $317 million under authorized programs during FY2022; $164 million remained available at year-end. The company has not paid cash dividends and does not anticipate doing so in the foreseeable future.
- Receivables sales were substantial: about $1.9 billion in FY2022 versus $0.5 billion in FY2021. These sales are reported as operating cash flow. Their availability depends on bank or customer approval and commitments.
Material changes, outlook and risks
- Net income declined even as operating income rose, reflecting a swing in other income (expense): FY2022 included a $26.3 million expense, versus $44.3 million of income in FY2021. Items included a $7 million allowance against a note receivable, deferred-compensation investment losses, receivables-sale fees, a pension settlement charge and debt-extinguishment costs. FY2021 included intellectual-property sale and antitrust settlement gains.
- Supply constraints, especially for semiconductors and other components, limited shipments and increased inventory; inflation raised component, labor and transportation costs. Management said shortages were expected to persist through at least the remainder of calendar 2022. The filing gives no quantified revenue or earnings guidance.
- Customer concentration remains material: the ten largest customers represented 48.7% of sales. Nokia and Motorola each represented at least 10% of FY2022 sales. Customer forecasts and orders generally are not firm long-term purchase commitments and may be canceled or delayed.
- On October 3, 2022, after fiscal year-end, Reliance acquired 50.1% of Sanmina’s Indian manufacturing entity for approximately $215 million; Sanmina retained 49.9% and expects to continue consolidating the entity. The proceeds are subsequent to the reporting date.
- Environmental contingencies warrant attention. In the Orange County groundwater case, a court’s June 2022 tentative ruling found Sanmina liable for certain past investigation costs. The company recorded an estimated loss but said additional losses are probable and could be material; it could not estimate their amount or range. A separate Dialight dispute includes the former customer’s claims exceeding $200 million, which Sanmina disputes and says are contractually limited to less than $2 million.
- Other risks include COVID-19 and geopolitical disruptions, tariffs and export controls, foreign-exchange exposure, customer credit and cancellation risk, cybersecurity, regulatory compliance and competitive pricing. The company reported $38 million of reserves for environmental, warranty, litigation and other contingencies, excluding uncertain tax positions.
Key facts for investors to verify
- Whether component supply constraints eased and elevated inventory converted into shipments and cash after year-end.
- How much FY2022 operating cash flow depended on receivables factoring, and whether such funding remains available on acceptable terms.
- The final proceeds, accounting and operating effects of the India joint venture, including Sanmina’s continued consolidation of the entity.
- Developments and potential exposure in the Orange County environmental case, and the status of the Dialight litigation.
- Whether margins recover, particularly CPS margins, amid cost inflation, product mix changes and customer pricing pressure.