8-K: Plexus Corp. Announces Fiscal Q1 2024 Results and Issues Q2 Guidance Amidst Market Softening

Plexus Corp. reported first quarter fiscal 2024 revenue of $983 million and initiated second quarter revenue guidance of $930 million to $970 million, while also announcing restructuring actions to improve efficiency.

Summary

• Plexus Corp. announced its fiscal first quarter 2024 results, reporting revenue of $983 million, a GAAP operating margin of 4.6%, and GAAP diluted EPS of $1.04.
• These results include $0.19 of stock-based compensation expense.
• The company also provided guidance for the fiscal second quarter of 2024, projecting revenue between $930 million and $970 million, and GAAP diluted EPS between $0.48 and $0.63.
• The second quarter guidance includes $0.25 of stock-based compensation expense and approximately $0.32 of restructuring charges.
• Plexus won 30 new manufacturing programs during the quarter, representing $261 million in annualized revenue when fully ramped into production.
• The company's trailing four-quarter manufacturing wins total $1.05 billion in annualized revenue when fully ramped.
• A new $50 million share repurchase program was approved, commencing after the current authorization is completed, which has $5.7 million remaining.
• The company is implementing restructuring actions expected to result in approximately $20 million of annualized cost savings, with $10 million in charges expected in the second quarter.
• Plexus anticipates the second quarter to be a revenue trough, with sequential expansion in revenue and operating margin expected in the second half of fiscal 2024.
• The company remains committed to delivering a 5.5% GAAP operating margin in fiscal 2025.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to the lower guidance and restructuring charges, but there are positive aspects such as new program wins and a share repurchase program. The company is facing headwinds but is taking steps to improve efficiency and profitability.

Positives

• Plexus secured $261 million in annualized revenue from 30 new manufacturing programs in the first quarter.
• The company's funnel of qualified manufacturing opportunities expanded by more than $300 million from the prior quarter to $4.0 billion.
• A new $50 million share repurchase program was approved, indicating confidence in the company's financial position.
• Restructuring actions are expected to generate $20 million in annualized cost savings, improving future profitability.
• Plexus anticipates sequential revenue and operating margin expansion in the second half of fiscal 2024.
• The company is committed to achieving a 5.5% GAAP operating margin in fiscal 2025.
• Plexus believes it will continue to drive share gain from large and increasing addressable markets.

Negatives

• The company's revenue guidance for the second quarter is lower than the first quarter, indicating a potential slowdown.
• The second quarter EPS guidance is significantly lower than the first quarter, due to restructuring charges and continued demand softening.
• The company is experiencing demand softening in the Healthcare/Lifesciences market and certain subsectors of the Industrial sector.
• Restructuring charges of approximately $10 million, or $0.32 per share, will impact the second quarter results.
• Cash flows used in operations were $3.0 million, and capital expenditures were $28.7 million, resulting in negative free cash flow of $31.7 million for the quarter.
• The company is guiding slightly higher cash cycle days for the fiscal second quarter related to additional working capital investments.

Risks

• The company faces risks related to inflationary pressures on production costs and profitability.
• Shortages and delays in obtaining components could impact the company's ability to meet customer demand.
• Customer delays, changes, cancellations, or forecast inaccuracies could affect revenue and profitability.
• The company's Xiamen, China subsidiary being placed on the Bureau of Industry and Security's Unverified List poses a risk.
• There is a risk that the company may not realize the anticipated savings from restructuring actions.
• The lack of visibility of future orders, particularly in view of changing economic conditions, is a concern.
• The company is exposed to risks related to the economic performance of the industries, sectors, and customers it serves.
• The company faces risks related to litigation and regulatory investigations.
• Tariffs, trade disputes, and other trade protection measures could impact the company's business.
• The company is exposed to risks related to fluctuations in the value of currencies in which it transacts business.
• The company faces risks related to global events such as conflicts, terrorism, and health epidemics.

Future Outlook

Plexus anticipates the fiscal second quarter to represent a revenue trough, with sequential expansion in revenue and operating margin during the second half of fiscal 2024. The company expects to deliver improved profitability resulting from the restructuring actions, increased manufacturing revenue and improved utilization of its engineering team, and remains committed to delivering 5.5% GAAP operating margin in fiscal 2025.

Management Comments

• Todd Kelsey, Chief Executive Officer, commented that Plexus delivered fiscal first quarter revenue of $983 million, GAAP operating margin of 4.6% and GAAP EPS of $1.04, consistent with revised expectations.
• Mr. Kelsey stated that the go-to-market organization is leveraging the current environment to create significant opportunity for future growth.
• Mr. Kelsey noted that the company won 30 new manufacturing programs worth $261 million in annualized revenue.
• Mr. Kelsey mentioned that the funnel of qualified manufacturing opportunities expanded to $4.0 billion.
• Mr. Kelsey stated that the company is guiding fiscal second quarter revenue of $930 million to $970 million, non-GAAP operating margin of 4.0% to 4.4% and non-GAAP EPS of $0.80 to $0.95.
• Mr. Kelsey noted that the continued demand softening in the Healthcare/Lifesciences market and certain subsectors of the Industrial sector has created inefficiencies.
• Mr. Kelsey stated that the company is implementing restructuring actions to generate greater long-term organizational efficiency and structurally reduce fixed costs.
• Patrick Jermain, Chief Financial Officer, commented that the company is guiding slightly higher cash cycle days for the fiscal second quarter related to additional working capital investments.
• Mr. Jermain stated that the company expects improvement to its cash cycle as it progresses through the second half of fiscal 2024.
• Mr. Kelsey concluded that the company anticipates the fiscal second quarter to represent a revenue trough, with sequential expansion in revenue and operating margin during the second half of fiscal 2024.

Industry Context

The announcement reflects a mixed picture for the electronics manufacturing services industry, with Plexus experiencing both growth in new program wins and challenges from demand softening in key sectors. The restructuring actions and focus on cost savings are indicative of a broader trend in the industry to optimize operations in response to economic uncertainties.

Comparison to Industry Standards

• Plexus's revenue of $983 million is a decrease compared to the previous quarter ($1,024 million) and the same quarter last year ($1,094 million), indicating a potential slowdown in growth compared to previous periods.
• The company's GAAP operating margin of 4.6% is lower than the previous quarter's 5.2% and the same quarter last year's 5.2%, suggesting a decrease in profitability.
• The company's ROIC of 10.3% is lower than the previous quarter's 13.4% and the same quarter last year's 13.8%, indicating a decrease in the efficiency of capital utilization.
• Compared to other contract manufacturers like Jabil and Flex, Plexus's revenue and margin performance in this quarter appears to be facing similar headwinds, with a focus on cost optimization and restructuring.
• The company's focus on winning new manufacturing programs and expanding its funnel of opportunities is consistent with industry trends of seeking growth through new customer relationships and market expansion.
• The restructuring actions and cost-saving measures are similar to actions taken by other companies in the industry to improve profitability in a challenging economic environment.

Stakeholder Impact

• Shareholders may experience short-term volatility due to the lower guidance and restructuring charges, but the share repurchase program could provide some support.
• Employees may be affected by the restructuring actions, which could lead to job losses or changes in roles.
• Customers may experience some disruption during the restructuring process, but the company aims to improve efficiency and service in the long term.
• Suppliers may be impacted by changes in the company's supply chain and production plans.
• Creditors may be affected by changes in the company's financial performance and cash flow.

Next Steps

• The company will implement restructuring actions to reduce costs and improve efficiency.
• Plexus will focus on working capital optimization to improve cash flow.
• The company will continue to pursue new manufacturing program wins and expand its funnel of qualified opportunities.
• Plexus will host a conference call and webcast on January 25, 2024, to discuss the results.

Key Dates

Keywords

manufacturing, electronics, contract manufacturing, revenue, operating margin, EPS, restructuring, share repurchase, supply chain, healthcare, industrial, aerospace, defense