CLS (NASDAQ:CLS) shares dropped 15.14% on Thursday despite the company reporting first-quarter results that largely met or exceeded analyst expectations. The sell-off followed a recent rally in the stock, leaving investors with what some market watchers described as limited upside after the earnings release.
On the top line, CLS delivered $4.05 billion in revenue, representing a 53% increase year-over-year and roughly in line with analyst expectations of $4.0 billion. Adjusted earnings per share were $2.16, up 80% from the year-ago quarter and above the consensus estimate of $2.08.
Margin outcomes were mixed. Gross margin for the quarter came in at 11.3%, a touch below the analyst consensus of 11.6%. Operating margins, however, exceeded forecasts by 9 basis points. Within the company, CCS and ATS revenues were in line with expectations, while the ATS business was essentially flat year-over-year with margins improving to 6% from 5% in the first quarter of fiscal 2025. HPS revenues reached $1.7 billion, up from $1.4 billion in the prior quarter.
Customer concentration remains notable. Three customers accounted for more than 10% of revenue; Barclays analysts identified these customers as Alphabet, Meta, and Amazon, estimating they represent 35%, 15%, and 15% of revenue, respectively.
"We are waiting for more details on the call tomorrow. The company mentioned the outlook for 2027 continues to strengthen from 90 days ago. We expect to hear more color around the CPO switch win, margins, and more guidance on the earnings call, which will take place tomorrow at 8am EST," Barclays analysts said.
Market commentary suggested that valuation concerns, rather than the underlying results alone, drove much of the stock’s decline. Mizuho analysts noted that recent appreciation in names across related segments had left forward risk-reward profiles less compelling, and that investors were being reminded to exercise caution. They added that CLS and other similarly positioned companies have been bid up to levels that compress the appeal of future upside.
"Feels like a good reminder to everyone to be careful. CLS hosts their conf call today as does GLW and expect both to signal continued strength and strong bookings / demand from key customer segments. These names just got all bid up to levels where the forward RISK vs REWARD WAS NO LONGER SUPER COMPELLING. Makes you wonder into AMD and KLAC results as well as SNDK and the HDD mfrs," Mizuho analysts commented.
Investors will be watching CLS’s upcoming conference call for additional color on margin trends, the cited CPO switch win, and guidance dynamics heading into the remainder of the year. Barclays specifically flagged expectations for more details on the company's 2027 outlook.
Summary of results:
- Revenue: $4.05 billion, +53% YoY, roughly in line with $4.0 billion consensus.
- EPS: $2.16, up 80% YoY, beating $2.08 consensus.
- Gross margin: 11.3% (vs. 11.6% expected); operating margin beat by 9 basis points.
- HPS revenues: $1.7 billion, up from $1.4 billion in the prior quarter.
Analyst commentary highlighted both the underlying demand signal and the valuation backdrop that moderated investor reaction. The upcoming earnings call is expected to provide further detail on margin progression and long-term outlook assumptions.