8-K: Plexus Corp. Announces Fiscal Second Quarter Results and Provides Third Quarter Guidance

Plexus Corp. reported fiscal second quarter 2024 revenue of $967 million and non-GAAP diluted EPS of $0.94, meeting the top end of their guidance, and initiated fiscal third quarter 2024 revenue guidance of $960 million to $1.00 billion.

Summary

• Plexus Corp. announced its financial results for the fiscal second quarter ended March 30, 2024.
• The company reported revenue of $967 million for the quarter.
• GAAP operating margin was 3.0%, while non-GAAP operating margin was 4.2%.
• GAAP diluted EPS was $0.58, which included $0.25 of stock-based compensation expense and $0.36 of restructuring and other charges.
• Non-GAAP diluted EPS was $0.94, including $0.25 of stock-based compensation expense.
• Plexus initiated fiscal third quarter 2024 revenue guidance of $960 million to $1.00 billion.
• The company expects GAAP diluted EPS of $0.80 to $0.95 for the third quarter, including $0.21 of stock-based compensation expense and $0.21 of restructuring charges.
• Non-GAAP EPS guidance for the third quarter is $1.22 to $1.37, excluding both stock-based compensation expense and restructuring charges.
• The company won 32 manufacturing programs during the quarter, representing $255 million in annualized revenue when fully ramped into production.
• Plexus repurchased $17.6 million of its shares at an average price of $94.39 per share, leaving $38.1 million available under the current authorization.
• Free cash flow for the quarter was $65 million, and the company anticipates delivering approximately $100 million of free cash flow in fiscal 2024.
• The cash cycle was 91 days, which is 10 days favorable to expectations and sequentially lower by four days.
• Return on invested capital (ROIC) for the fiscal second quarter was 9.9%, which is 170 basis points above the weighted average cost of capital.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with the company meeting expectations and showing strong cash flow generation. However, there are some negative aspects such as decreased revenue and net income compared to the previous year, and restructuring costs.

Positives

• The company met the top end of its revenue and non-GAAP EPS guidance for the second quarter.
• Plexus generated strong free cash flow of $65 million in the second quarter.
• The company secured significant new manufacturing programs, adding $255 million in annualized revenue.
• The cash cycle improved to 91 days, indicating efficient working capital management.
• Return on invested capital exceeded the weighted average cost of capital, demonstrating effective capital allocation.
• The company is projecting strong free cash flow for the full fiscal year.
• Plexus is experiencing robust demand in the Aerospace and Defense market sector.
• The company is seeing a gradual recovery in semiconductor capital equipment demand.
• New program ramps are mitigating inventory correction headwinds in the Healthcare/Lifesciences and Industrial market sectors.

Negatives

• GAAP diluted EPS for the second quarter was $0.58, which was impacted by $0.36 of restructuring and other charges.
• The company incurred $13.3 million in restructuring and impairment charges during the quarter.
• The company's revenue decreased compared to the same quarter last year, from $1,070.823 million to $966.900 million.
• Net income decreased significantly compared to the same quarter last year, from $40.844 million to $16.239 million.
• Diluted EPS decreased significantly compared to the same quarter last year, from $1.45 to $0.58.

Risks

• The company faces risks related to realizing anticipated savings from restructuring actions.
• Inflationary pressures could impact production costs and profitability.
• Shortages and delays in obtaining components could affect operations.
• Customer delays, changes, cancellations, or forecast inaccuracies could impact revenue.
• The company faces risks related to the economic performance of the industries and customers it serves.
• There are risks associated with new or recent customers, programs, or services, including start-up costs and potential execution issues.
• The company faces risks related to excess and obsolete inventory.
• Fluctuations in currency values could impact financial results.
• Global events such as conflicts, terrorism, and health epidemics could affect operations.
• Increased competition could impact the company's market position.

Future Outlook

Plexus anticipates a strong finish to fiscal 2024 with expansion in revenue and non-GAAP operating margin each quarter, as well as robust free cash flow generation, positioning the company for further momentum into fiscal 2025.

Management Comments

• Todd Kelsey, CEO, stated that Plexus delivered fiscal second quarter revenue of $967 million and non-GAAP EPS of $0.94, each of which met the top end of their guidance.
• Mr. Kelsey also noted that the company's go-to-market organization is winning significant new outsourcing opportunities and capturing market share.
• Patrick Jermain, CFO, commented that the $65 million of free cash flow generated during the fiscal second quarter significantly exceeded net income and expectations.
• Mr. Jermain also mentioned that the company expects to execute the remaining $38.1 million of its current share repurchase authorization during the second half of fiscal 2024.

Industry Context

Plexus operates in the electronics manufacturing services (EMS) industry, which is influenced by global economic conditions, supply chain dynamics, and technological advancements. The company's performance is tied to the demand for its services from various sectors, including healthcare, industrial, and aerospace/defense. The company's focus on winning new programs and managing working capital is consistent with industry best practices.

Comparison to Industry Standards

• Plexus's ROIC of 9.9% is above its weighted average cost of capital of 8.2%, indicating efficient capital management, which is a key metric for EMS companies.
• Compared to competitors like Jabil and Flex, Plexus's focus on high-complexity products and demanding regulatory environments differentiates its service offering.
• The company's cash cycle of 91 days is a positive indicator of working capital efficiency, which is crucial in the EMS industry where inventory management is critical.
• The company's revenue growth is expected to inflect higher, which is a positive sign compared to some competitors who may be facing headwinds in certain sectors.
• The company's focus on free cash flow generation is a positive sign compared to some competitors who may be facing cash flow challenges.

Stakeholder Impact

• Shareholders will benefit from the share repurchase program and the company's focus on increasing shareholder value.
• Employees may be impacted by the restructuring actions, including potential job losses.
• Customers will benefit from the company's focus on delivering high-quality products and services.
• Suppliers will be impacted by the company's production volumes and supply chain management.
• Creditors will be impacted by the company's financial performance and debt management.

Next Steps

• Plexus will continue to execute its share repurchase program, with $38.1 million remaining under the current authorization.
• The company will focus on ramping up new manufacturing programs won during the quarter.
• Plexus will continue to manage working capital to improve cash flow.
• The company will continue to monitor and respond to market conditions and customer demand.
• Plexus will host a conference call on April 25, 2024, to discuss the results.

Key Dates

Keywords

Plexus, Manufacturing, Electronics, Revenue, EPS, Operating Margin, Free Cash Flow, ROIC, Restructuring, Guidance, Aerospace, Defense, Healthcare, Industrial