Plexus Corp. (
reported a weak first-quarter fiscal 2014. While earnings of 61
cents per share were in line with the Zacks Consensus Estimate,
revenues missed the same. The company's second-quarter guidance
also failed to impress and its back-end loaded outlook will
remain an overhang on the stock.
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Revenues were almost flat year over year, but declined 6.0%
sequentially to $534.0 million. Revenues came within management's
guided range of $520.0 million to $550.0 million. The decline in
revenues was primarily due to weak performance by the
disengagement negatively impacted first-quarter revenues by
approximately $40.0 million on a sequential basis.
Revenues from Networking/Communications sector (38.0% of
revenues) decreased 18.1% year over year and 17.3% on a
sequential basis to $163.0 million. The segment's lackluster
performance was primarily due to weak end-market demand
experienced by the company's customers.
Healthcare/Life Sciences (25.0% of revenues) reported a
better-than-expected quarter. Revenues increased 24.1% from the
year-ago quarter and 3.8% sequentially to $165.0 million. The
sequential increase was due to better-than-expected performance
by its top customers.
Industrial/Commercial sector (24.0% of revenues) increased 3.8%
on a year-over-year basis but decreased 4.9% sequentially to
$136.0 million, due to sluggish performance by its top customers.
The result was in line with management's guidance of mid
single-digit percentage points decline on a sequential basis.
However, the most disappointing result was from the
Defense/Security/Aerospace sector (13.0% of revenues). Revenues
increased 2.9% year over year and 1.4% sequentially to $70.0
million, much lower than management's guidance of high
single-digit percentage increase on a sequential basis.
Lackluster performance from a major security customer brought
down the revenues.
During the quarter, Plexus won 29 new programs in the
manufacturing solutions group, which is expected to generate
approximately $205.0 million (48.0% in North America) in
annualized revenues once production commences.
Gross margin was almost flat with the year-ago quarter and
previous quarter to 9.6%.
Selling and administrative (S&A) expense as a percentage of
revenues declined 70 basis points (bps) from the year-ago quarter
but remained almost flat with the previous quarter to 4.9%,
reflecting stringent cost control.
As a result, operating margin expanded 80 bps from the year-ago
quarter and 10 bps from the previous quarter to 4.8%.
Net income margin improved 90 bps from the year-ago quarter but
contracted 10 bps on a sequential basis to 4.0%.
Earnings (excluding restructuring expenses) increased 30.2% year
over year but declined 8.0% quarter over quarter to 61 cents per
share, which was within management's guided range of 57 cents to
Balance Sheet & Cash Flow
Plexus exited the first quarter of fiscal 2014 with $324.2
million in cash and investments versus $341.9 million in the
fourth quarter of fiscal 2013. Long-term debt and capital lease
obligations (including the current portion) amounted to $260.7
Cash flow from operations was $4.0 million in the quarter while
free cash flow amounted to an outflow of $18.0 million. During
the quarter, Plexus repurchased shares worth $6.9 million at an
average cost of $39.88 per share.
For the second quarter of fiscal 2014, revenues are projected in
the range of $535.0 million to $565.0 million. Management expects
revenues (mid-point of the outlook range) to increase 3.0% on a
However, the mid-point reflects approximately 1.4% decline in
revenues on a year-over-year basis. Currently, the Zacks
Consensus Estimate for revenues is pegged at $537.0 million for
the upcoming quarter.
Moreover, management expects Network/communication segment
revenues to be down in high single-digit percentage range
sequentially for the upcoming quarter. Plexus noted that 14 out
of 15 customers are expected to report downward growth trend in
demand, which will affect the sector's overall result.
However, this trend is expected to reverse in the third quarter
of fiscal 2014. Plexus expects to benefit from new program wins,
Healthcare/Life Sciences revenues are expected to remain flat on
a sequential basis. Seasonal softness in a key customer is
expected to be offset by new program wins from the likes of
General Electric (
Industrial/Commercial revenues are expected to increase at
low-teen percentage on a sequential basis. Revenues from
Defense/Security/Aerospace are expected to increase in the low to
mid percentage point range over first quarter, driven by strong
performance from Aerospace.
Earnings are projected to be between 57 cents and 63 cents per
share, excluding any restructuring charges but including
approximately 10 cents per share in stock-based compensation
expenses. The Zacks Consensus Estimate is currently pegged at 62
Management expects gross margin in the range of 9.4% to 9.6%
while operating margin is expected in the range of 4.4% to 4.6%,
both down sequentially. The company expects its S&A expense
to be between $27.0 million and $28.0 million, slightly up from
the previous quarter.
For fiscal 2014, management expects to spend $75.0 million on
We believe that a sluggish demand environment will continue to
hurt Plexus in the near term. Sluggish results from top customers
in the company's biggest Networking/Communications sector will
continue to hurt top-line growth, going forward.
Moreover, a matured electronic manufacturing services market and
intense competition from the likes of
Jabil Circuit (
remain other headwinds for Plexus.
However, we believe that new business opportunities, particularly
in the industrial/commercial and healthcare/life sciences sectors
and global expansion will drive growth over the long term.
Moreover, the disengagement from Juniper is expected to improve
the product mix, going forward. Additionally, the consolidation
of the company's production facilities in low-cost areas is
expected to boost margins, going forward.
Currently, Plexus has a Zacks Rank #3 (Hold).