Plexus (PLXS) Q2 Earnings & Revenues Surpass Estimates

Plexus Corp PLXS reported second quarter fiscal 2016 results wherein both quarterly non GAAP earnings of 55 cents per share and revenues of $619 million easily beat the respective Zacks Consensus Estimate of 52 cents and $616 million. However, the metrics declined 20.3% and 5%, respectively on a year-over-year basis.

Nonetheless, the revenue figure was within the company's guided range of $600 million - $630 million.

Revenues from the Networking/Communications sector (25% of total revenue) plummeted 25.2% year over year to $157 million.

Healthcare/Life Sciences (31%) revenues were almost flat from the year-ago quarter at $190 million.

However, Industrial/Commercial (27%) revenues increased 5.6% year over year to $169 million.

Defense/Security/Aerospace segment (17%) revenues surged 14.4% on a year-over-year basis to $103 million.

During the quarter, the company won 38 programs for which it anticipates approximately $174 million in annualized revenues once production commences.

Region-wise, the company's revenues from Americas declined 0.5% and 15.2%, respectively, on a year-over-year basis. Nonetheless, Plexus' revenues from Europe, Middle East, and Africa regions increased nearly 22.2% over the prior-year quarter.

Margins

Plexus reported adjusted operating profit of $25.3 million in the quarter, down 14.2% year over year. Adjusted operating margin increased 40 basis points year over year to 4.1%.

Balance Sheet & Cash Flow

Plexus exited the quarter with cash & cash equivalents worth $409.8 million compared with $357.1 million as on fiscal 2015-end. The company had long-term debt and capital lease obligations of about $259.6 million.

The company generated $70 million in cash flow from operations in the quarter and used $5 million for capital investment, leaving $65 million as free cash flow.

Outlook

For the third quarter of fiscal 2016, revenues are projected in the range of $640 million - $670 million. Non GAAP earnings are projected within 73 to 81 cents per share.  Non GAAP operating margin is expected to be 4.7% to 5%.

In addition, the company stated that its business can be impacted in the near term owing to the ongoing closure of its two lower-margin facilities. However, management expects the business to stabilize during the second half of fiscal 2016.

Our Take

We believe new program wins along with global expansion will drive growth over the long term. Additionally, the consolidation of the company's production facilities in low-cost areas is expected to boost margins, going forward.

However, a mature electronic manufacturing services market and intense competition from the likes of Jabil Circuit JBL, Celestical Inc. CLS and Flextronics FLEX remain headwinds. Additionally, the company expects weakness in the Networking/Communications market to impact the business in the near term.

Currently, Plexus has a Zacks Rank #3 (Hold).

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