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Plexus (PLXS) Q2 Earnings Miss Estimates, Revenues Beat

Zacks Equity Research

Plexus PLXS reported second-quarter fiscal 2019 adjusted earnings of 79 cents per share, which increased 6.8% year over year. However, the figure came below the Zacks Consensus Estimate of 85 cents.

Nevertheless, revenues of $789 million beat the consensus mark of $777 million and increased 12.9% on a year-over-year basis. Strong performance of Healthcare/Life Sciences and Aerospace/Defense segments drove top-line growth.

Plexus Corp. Price, Consensus and EPS Surprise

Plexus Corp. Price, Consensus and EPS Surprise | Plexus Corp. Quote

Segment Details

Healthcare/Life Sciences revenues (38% of total revenues) were up 21% from the year-ago quarter to $300 million.

Industrial/Commercial revenues (31.7%) were up 3.3% year over year to $250 million.

Aerospace/Defense segment revenues (17.7%) grew 27.3% on a year-over-year basis to $140 million.

Revenues from the Communications sector (12.5%) remained flat year over year at $99 million.

Region-wise, revenues from the Americas (AMER) increased 20.5% from the year-ago quarter to $364 million. Revenues from the Asia Pacific region (APAC) rose 8% to $378 million. Revenues from Europe, the Middle East and Africa (EMEA) totaled $76 million, up 2.7% year over year.

Contract Wins

Plexus won 36 manufacturing contracts during the quarter worth $247 million in annualized revenues. Manufacturing wins contributed $912 million in annualized revenues in the trailing four quarters.

Notably, the top 10 customers of the company together accounted for 59% of net revenues, which stayed flat sequentially.

Operating Details

Adjusted gross profit increased 7.8% year over year $71 million. However, adjusted gross margin contracted 40 basis points (bps) year over year to 9% in the second quarter.

Reported selling and administrative expenses (4.7% of revenues) increased 5.1% from the year-ago quarter to approximately $37.5 million.

Plexus reported adjusted operating income of $33.2 million, up 7.6% year over year. However, adjusted operating margin contracted 20 bps on a year-over-year basis to 4.2%.

Notably, margins came under pressure as a result of unfavorable customer mix.

Return on Invested Capital (ROIC) in second-quarter fiscal 2019 was 13.3%

Balance Sheet & Cash Flow

Plexus exited the quarter with cash & cash equivalents worth $184 million compared with $188.8 million in first-quarter fiscal 2019.

In second-quarter fiscal 2019, the company used cash of $1.2 million for operations and $29.7 million for capital expenditures, resulting in negative free cash flow of $30.9 million.

Plexus had long-term debt of $187.1 million compared with $187.6 million in the year-ago quarter. Share repurchases for the quarter amounted to $56.2 million.

Guidance

Third-Quarter Fiscal 2019

Revenues are projected in the range of $760 million and $800 million and operating margin is expected to be in the band of 4.3% and 4.7%.

Additionally, Plexus expects GAAP earnings in the range of 76 cents to 86 cents.

Growth in Aerospace/Defense and Healthcare/Life Sciences sectors may likely be offset by Communications sector’s decline and led to the soft guidance

2019

Plexus anticipates free cash flow to be in the range of $40 to $60 million. Moreover, the company expects to achieve its “target operating margin range” in fourth-quarter fiscal 2019 owing to enhanced productivity and reduction in costs.

Zacks Rank & Stocks to Consider

Plexus currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader computer and technology sector include Xilinx, Inc. XLNX, Juniper Networks, Inc. JNPR and SS&C Technologies Holdings, Inc. SSNC. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The expected long-term earnings growth rate for Xilinx, Juniper and SS&C Technologies is 12%, 7.1% and 12%, respectively.

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