Flex to Cut Costs, Workforce as Earnings Slide 07/25/2019 | 05:57pm

By Dave Sebastian

Contract manufacturer Flex Ltd. (FLEX) is restructuring its operations as U.S. restrictions on a key customer -- Huawei Technologies Co. -- dented sales and profit in the latest period.

Flex said Thursday it launched efforts to reduce costs in its first quarter and would continue that process through the current fiscal year. Operational changes Flex said it is pursuing include reducing its exposure to certain high-volatility products in China and India.

As a result, the technology equipment maker is scaling down its Huawei-dedicated operations in China, Flex Chief Executive Revathi Advaithi said on an earnings call.

"Flex and Huawei have had a long-standing and successful partnership," Ms. Advaithi said. "We have worked with them to find an agreeable solution. This change is unfortunate. However, China is and will remain a very important center of production and market for Flex."

Shares rose 7.7% in extended trading.

U.S. officials have signaled interest in easing restrictions on suppliers selling products to China's Huawei, one of the world's makers of networking gear and smartphones. Earlier this year, the Trump administration barred U.S. firms from supplying technology to Huawei and its affiliates without a license amid national security concerns.

The move drew the ire of Chinese government officials and well as industry executives.

Flex's first-quarter profit fell 61% from a year earlier to $44.9 million, or 9 cents a share. The company recorded more than $56 million in charges in connection with employee severance and impairment of equipment and inventory. Excluding special items, earnings were 27 cents a share, in line with estimates from analysts polled by FactSet.

Sales dropped to $6.18 billion from $6.4 billion in the comparable quarter last year. The consensus forecast from analysts was $6.24 billion.

The company said it expects to incur $145 million to $265 million in additional restructuring and other charges in the current fiscal year.

Despite the charges, the company backed its outlook of adjusted per-share earnings being between $1.20 and $1.30.

For the second quarter, the company guided a per-share loss between 5 cents and 25 cents. On an adjusted basis, it guided a profit between 29 cents and 33 cents a share. Flex said it sees revenue of $6.1 billion to $6.5 billion.

Write to Dave Sebastian at dave.sebastian@wsj.com