Flex (NASDAQ: FLEX) raised its fiscal 2027 revenue, adjusted operating margin and adjusted earnings guidance after artificial intelligence-related infrastructure demand helped lift second-quarter sales by 25% and adjusted earnings per share by 49%. Growth was led by the Cloud and Power Infrastructure business, which Flex plans to spin off as Axiom in the first quarter of calendar 2027.
For the quarter ended September 25, 2026, revenue rose to $8.49 billion from $6.80 billion a year earlier. Adjusted operating income increased 48% to $607 million, while adjusted operating margin expanded 110 basis points to 7.1%, reflecting productivity improvements and a more favorable business mix.
Adjusted net income reached $443 million, compared with $300 million a year earlier, and adjusted EPS increased to a record $1.18 from $0.79. On a GAAP basis, net income was $263 million and diluted EPS was $0.70, up from $199 million and $0.52, respectively. GAAP operating income increased to $414 million from $296 million.
Adjusted gross profit rose 33% to $842 million, with the corresponding margin improving 60 basis points to 9.9%. The company reported revenue growth and adjusted operating margin expansion across all three operating segments.
AI Infrastructure Leads Segment Growth
Cloud and Power Infrastructure, or CPI, generated $2.5 billion of revenue, up 54% year over year, as demand remained strong across both Power and Cloud & Cooling. Adjusted operating income nearly doubled to $268 million, and the segment’s adjusted operating margin expanded 240 basis points to 10.7%.
Flex said continued data-center construction was supporting Cloud & Cooling growth, while demand for critical and embedded power products remained robust. The company is continuing to invest in the Power business to support future growth.
Integrated Technology Solutions revenue increased 22% to $3.3 billion. Adjusted operating income rose 26% to $181 million, and adjusted operating margin improved 20 basis points to 5.5%. Communications benefited from AI-related demand for advanced networking, while Flex reported incremental softness in consumer-related Lifestyle markets.
Regulated Manufacturing Solutions posted revenue of $2.7 billion, up 9%. Adjusted operating income increased 19% to $172 million, with adjusted operating margin rising 50 basis points to 6.4%. Industrial growth was supported by energy infrastructure and robotics. Flex described the Automotive market as stabilizing, with a focus on higher-quality power and compute opportunities, while connected medical devices and drug delivery remain areas of long-term focus in Healthcare.
Fiscal 2027 Outlook Increased
Flex now expects fiscal 2027 revenue of $34.9 billion to $35.9 billion, compared with its previous range of $33.7 billion to $35.2 billion. The updated forecast includes acquisitions completed after September 25, including EPC Power, whose acquisition closed on October 14 and is expected by the company to be accretive during fiscal 2027.
The company projects an adjusted operating margin of 7.6% to 7.8%, above its prior forecast of 7.0% to 7.2%. Adjusted EPS is expected to range from $4.84 to $5.16, compared with the previous range of $4.42 to $4.74. Management attributed the outlook to strong CPI demand, growth in higher-value RMS and ITS markets, and favorable contributions from acquisitions and business mix.
For the full fiscal year, CPI revenue is expected to rise 75% to 85%, while combined RMS and ITS revenue is forecast to grow 8% to 11%. Free cash flow conversion is expected to be about 40%, including one-time costs associated with the planned Axiom separation.
For the third quarter, Flex forecast revenue of $8.87 billion to $9.17 billion, adjusted operating income of $685 million to $715 million and adjusted EPS of $1.19 to $1.25. The company expects CPI revenue to rise 105% to 115%, ITS revenue to increase by a mid-single-digit to high-single-digit percentage, and RMS revenue to grow by a low-single-digit to mid-single-digit percentage.
Cash Flow and Axiom Separation
Second-quarter operating cash flow was $501 million. After $240 million of net capital expenditures, free cash flow totaled $261 million. Free cash flow was reduced by $61 million of one-time separation costs during the quarter. For the first six months of fiscal 2027, free cash flow was $302 million, including $85 million of separation costs.
Flex filed a preliminary Form 10 registration statement for Axiom in September and said the tax-free spin remains targeted for the first quarter of calendar 2027. Axiom is intended to comprise the Cloud and Power Infrastructure operations, including critical and embedded power products, thermal management and cloud-related offerings.
Flex used $4.4 billion of temporary borrowings to finance the EPC Power purchase. Under the planned post-separation capital structure, Axiom would carry the permanent EPC financing, while a cash distribution from Axiom would be used to repay the temporary Flex borrowings. Flex also expects to retain a 6% to 12% common equity interest in Axiom.
The separation remains subject to applicable approvals and completion requirements. Flex cautioned that the transaction could be delayed or not completed, may cost more than anticipated or may not deliver its intended benefits. Other disclosed uncertainties include macroeconomic weakness, inflation, currency volatility, geopolitical and trade tensions, supply-chain disruptions, component and labor costs, customer concentration, shifting demand, acquisition integration and competitive pressures.
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