Electronic Manufacturing Services provider
Plexus Corp. (
PLXS
)
is scheduled to report its first quarter 2012 results on January
18, 2012, after the market closes. In the run-up to the earnings
report, we witness no major variations in the consensus
estimates.
We note that on an average, Plexus has posted an earnings
surprise of 4.61% in the trailing four quarters, implying that it
has outdone the Zacks Consensus Estimate by the same magnitude over
the period.
We do not expect a major change in the earnings trend for the
current quarter. We believe that strong new business wins and
recovering end-market demand will drive growth in the upcoming
quarter.
Prior Quarter Recap
Plexus reported a mixed fourth quarter with revenues of $538.1
million, which missed the Zacks Consensus Estimate of $540.0
million. However, earnings per share (
EPS
) came in at 52 cents, surpassing the Zacks Consensus Estimate of
50 cents, based on strong year-over-year revenue
growth.
For further details please see
Plexus Reports Mixed 4Q
.
Current Quarter Outlook
Plexus recently revised its first quarter guidance. The company
now expects revenue in the range of $525.0-$530.0 million (earlier
guidance was $510.0 million to $540.0 million), based on
approximately $200.0 million worth of new program wins. The EPS is
expected to be in the range of 48 cents to 50 cents (earlier
guidance was 44 cents to 49 cents) for the first quarter.
Estimate Revision Trend
Currently, the Zacks Consensus Estimate is pegged at 47 cents
for the first quarter, a decrease of 21.7% from 60 cents reported
in the year-ago quarter. This is based on an estimated revenue
decline of 6.4% to $532.0 million.
In the last 30 days, two of the nine analysts covering the stock
raised their estimates for the first quarter. Similarly, four
analysts raised their estimates for fiscal 2012, while one analyst
lowered the estimate for the same period.
Our Recommendation
We believe that global expansion, a healthy pipeline of program
wins and improving end-market demand will drive growth over the
long term. We note that a faster ramp up of the freestyle soda
machines at Burger Kings and other locations (such as McDonald's
and Wendy's) will provide a significant revenue stream for Plexus
over the long term.
Freestyle is a fountain drink dispenser, with a touch LCD front
screen that provides consumers with more than 100 choices of soda
and beverages. The dispenser has been built in partnership with
The Coca-Cola Co. (
KO
)
and is currently being rolled out in approximately 850 Burger Kings
stores.
Most recently, Plexus entered into an asset-based transaction
with Germany-based Kontron AG. Under the terms of the agreement,
Plexus will buy certain assets of Kontron Design Manufacturing
Services (KDMS), a wholly owned subsidiary of Kontron AG, in
Penang, Malaysia, for approximately $30.0 - $35.0 million.
The transaction is expected to add incremental revenues of $50 -
$75 million for Plexus based on specified volumes from Kontron and
is expected to be modestly accretive to its earnings in 2012.
We believe that engineering agreements generate higher margins
and are generally incremental to the company's overall
profitability. We believe that the Kontron agreement will boost
Plexus's growth in the industrial/commercial sector going forward.
For further details please see
Plexus Strikes Deal with Kontron
.
Nonetheless, lack of visibility in customer growth and
macroeconomic concerns remain the primary headwinds for the
forthcoming quarters. Plexus is expanding its manufacturing
facilities in Malaysia and Romania, which will also hurt its
profitability in the near term. Moreover, intense competition,
continued component challenges and supply chain constraints are the
major concerns over the long term.
We have an Underperform recommendation on Plexus for the long
term (6-12 months). Currently, Plexus has a Zacks #3 Rank, which
implies a Hold rating for the short term.
COCA COLA CO (
KO
): Free Stock Analysis Report
PLEXUS CORP (
PLXS
): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research