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CST: 19/08/2019 17:56:52   

Plexus Announces Fiscal Second Quarter 2019 Financial Results

124 Days ago

  • Record quarterly revenue of $789 million during the fiscal second quarter of 2019
  • GAAP diluted EPS of $0.79
  • Initiates fiscal third quarter 2019 revenue guidance of $760 to $800 million with GAAP diluted EPS of $0.76 to $0.86

NEENAH, Wis., April 17, 2019 (GLOBE NEWSWIRE) -- Plexus (NASDAQ: PLXS) today announced financial results for its fiscal second quarter ended March 30, 2019, and guidance for its fiscal third quarter ending June 29, 2019.

  Three Months Ended
  Mar 30, 2019   Mar 30, 2019   Jun 29, 2019
  Q2F19 Results   Q2F19 Guidance   Q3F19 Guidance
Summary GAAP Items          
Revenue (in millions) $789   $760 to $800   $760 to $800
Operating margin   4.2%   4.3% to 4.7%   4.3% to 4.7%
Diluted EPS (1) $0.79   $0.80 to $0.90   $0.76 to $0.86
           
Summary Non-GAAP Items (2)          
Return on invested capital (ROIC)   13.3%        
Economic return   4.3%        
           
(1)  Includes stock-based compensation expense of $0.16 for Q2F19 results and $0.17 for Q3F19 guidance.
(2)  Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures and a reconciliation to GAAP.

Fiscal Second Quarter 2019 Information

  • Won 36 manufacturing programs during the quarter representing $247 million in annualized revenue when fully ramped into production
  • Trailing four quarter manufacturing wins total $912 million in annualized revenue when fully ramped into production
  • Purchased $56.2 million of our shares at an average price of $56.72 per share under our existing share repurchase program

Todd Kelsey, President and CEO, commented, “In the fiscal second quarter, we continued to deliver meaningful growth with record quarterly revenue of $789 million, a 13% increase over the comparable quarter last year.  Sizable customer mix changes that occurred within the quarter created cost inefficiencies, resulting in operating margin and EPS slightly below our guidance ranges.”

Patrick Jermain, Executive Vice President and CFO, commented, “During the fiscal second quarter, we continued our cash repatriation strategy by repatriating approximately $28 million of offshore cash.  We repurchased approximately $56 million of our shares, which was partially funded with repatriated cash. Since the enactment of U.S. tax reform last year, we have brought back close to $480 million.” 

Mr. Jermain continued, “Although working capital requirements were greater than anticipated during the fiscal second quarter, we are reconfirming our full fiscal year expectation for free cash flow in the range of $40 to $60 million.”

Mr. Kelsey continued, “As we look to the fiscal third quarter, we expect weakness in our Communications sector to offset anticipated growth in our Aerospace/Defense and Healthcare/Life Sciences sectors.  As a result, we are guiding relatively flat revenue in the range of $760 to $800 million.  At this revenue level, we anticipate GAAP EPS in the range of $0.76 to $0.86, with operating margins modestly below our target range.  Further, we are implementing productivity and cost containment actions that, in conjunction with our current revenue expectations, are designed to support a return to our target operating margin range in the fiscal fourth quarter.”

Mr. Kelsey concluded, “We remain confident in our revenue outlook and maintain our expectation of solid growth in fiscal 2019.  Demand remains robust in many of our end markets, and our teams continue to achieve strong wins performance throughout our differentiated portfolio, producing $247 million of new manufacturing wins in the fiscal second quarter.  While we continue to deliver the highest operating margin among our peers, we are committed to taking the necessary actions to consistently deliver our target range of 4.7% to 5.0%.”

Quarterly Comparison Three Months Ended
    Mar 30, 2019     Dec 29, 2018     Mar 31, 2018
(in thousands, except EPS)   Q2F19     Q1F19     Q2F18
Revenue $ 789,051   $ 765,544   $ 698,651
Gross profit   70,636     72,383     52,952
Operating income   33,174     36,951     17,315
Net income   24,758     22,226     12,290
Diluted earnings per share $ 0.79   $ 0.69   $ 0.36
Adjusted net income (1)   *     29,261     25,466
Adjusted diluted EPS (1)   *     $0.91     $0.74
                 
Gross margin   9.0%     9.5%     7.6%
Adjusted gross margin (1)   *     *     9.4%
Operating margin   4.2%     4.8%     2.5%
Adjusted operating margin (1)   *     *     4.4%
                 
ROIC (1)   13.3%     14.6%     15.6%
Economic return (1)   4.3%     5.6%     6.1%
                 
(1) Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures discussed in this release, such as adjusted net income, adjusted diluted EPS, ROIC and Economic Return, and a reconciliation of these measures to GAAP.
* No adjustments were made that impacted the measure in the indicated period.

Business Segment and Market Sector Revenue
The Company measures operational performance and allocates resources on a geographic segment basis.  Plexus also reports revenue based on the market sector breakout set forth in the table below, which reflects the Company’s global market sector focused business development strategy.  Top 10 customers comprised 56% of revenue during the fiscal second quarter, down three percentage points from the fiscal first quarter of 2019.

Business Segments ($ in millions) Three Months Ended
  Mar 30, 2019
Q2F19
  Dec 29, 2018
Q1F19
  Mar 31, 2018
Q2F18
Americas $ 364     $ 354     $ 302  
Asia-Pacific 378     378     350  
Europe, Middle East, and Africa 76     73     74  
Elimination of inter-segment sales (29 )   (39 )   (27 )
Total Revenue $ 789     $ 766     $ 699  
           


Market Sectors ($ in millions) Three Months Ended
  Mar 30, 2019
Q2F19
  Dec 29, 2018
Q1F19
  Mar 31, 2018
Q2F18
Healthcare/Life Sciences $ 300   38 %   $ 301   39 %   $ 248   35 %
Industrial/Commercial 250   32 %   219   29 %   242   35 %
Aerospace/Defense 140   18 %   123   16 %   110   16 %
Communications 99   12 %   123   16 %   99   14 %
Total Revenue $ 789       $ 766       $ 699    
                 

Non-GAAP Supplemental Information
Plexus provides non-GAAP supplemental information, such as ROIC, Economic Return, and free cash flow, because such measures are used for internal management goals and decision making, and because they provide management and investors additional insight into financial performance. In addition, management uses these and other non-GAAP measures, such as adjusted net income and adjusted diluted EPS, to provide a better understanding of core performance for purposes of period-to-period comparisons. Plexus believes that these measures are also useful to investors because they provide further insight by eliminating the effect of items, such as the continuing transitional effects of the U.S. Tax Cuts & Jobs Act (“U.S. Tax Reform”) and the one-time, non-executive employee bonus paid in the second quarter of fiscal 2018, which are not reflective of continuing operations. For a full reconciliation of non-GAAP measures to comparable GAAP measures, please refer to the attached Non-GAAP Supplemental Information Tables.

ROIC and Economic Return
ROIC for the fiscal second quarter was 13.3%. The Company defines ROIC for the fiscal second quarter as tax-effected annualized adjusted operating income divided by average invested capital over a three-quarter period. Invested capital is defined as equity plus debt, less cash and cash equivalents. The Company’s weighted average cost of capital for fiscal 2019 is 9.0%. ROIC for the fiscal second quarter less the Company’s weighted average cost of capital resulted in an economic return of 4.3%.

Free Cash Flow Calculation
The Company defines free cash flow as cash flows provided by operations less capital expenditures.  For the three months ended March 30, 2019, cash flows used in operations were $1.2 million, less capital expenditures of $29.7 million, resulting in negative free cash flow of $30.9 million. For the six months ended March 30, 2019, cash flows used in operations was $34.5 million, less capital expenditures of $54.6 million, resulting in negative free cash flow of $89.1 million.

Cash Cycle Days Three Months Ended
  Mar 30, 2019
Q2F19
  Dec 29, 2018
Q1F19
  Mar 31, 2018
Q2F18
Days in Accounts Receivable 51   51   52
Days in Contract Assets (1) 10   10   -
Days in Inventory (1) 102   105   100
Days in Accounts Payable (61)   (68)   (61)
Days in Cash Deposits (16)   (15)   (15)
Annualized Cash Cycle (1) 86   83   76
           
(1) We calculate cash cycle as the sum of days in accounts receivable, contract assets and days in inventory, less days in accounts payable and days in cash deposits.  On September 30, 2018, the Company adopted Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Revenue Recognition (Topic 606).  For the three months ended March 30, 2019 and December 29, 2018, cash cycle days include contract assets and an associated reduction in inventory. As the guidance was adopted using a modified retrospective approach, no impact to prior periods was required to be recognized.

Conference Call and Webcast Information

What: Plexus Fiscal 2019 Q2 Earnings Conference Call and Webcast
When: Thursday, April 18, 2019 at 8:30 a.m. Eastern Time
Where:  Participants are encouraged to join the live webcast at the investor relations section of the Plexus website, https://plexus.gcs-web.com/events-and-presentations/upcoming-events, where a slide presentation reviewing fiscal second quarter 2019 results will also be made available ahead of the conference call.
   
  Conference call at +1.800.773.2954 with passcode: 48374518
   
Replay: The webcast will be archived on the Plexus website and available via telephone replay at
+1.888.843.7419 or +1.630.652.3042 with passcode: 48374518

Investor and Media Contact
Heather Beresford
+1.920.751.3612
heather.beresford@plexus.com 

About Plexus – The Product Realization Company
Since 1979, Plexus has been partnering with companies to create the products that build a better world.  We are a team of over 19,000 individuals who are dedicated to providing global Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing, and Aftermarket Services.  Plexus is a global leader that specializes in serving customers in industries with highly complex products and demanding regulatory requirements.  Plexus delivers customer service excellence to leading global companies by providing innovative, comprehensive solutions throughout the product’s lifecycle.  For more information about Plexus, visit our website at www.plexus.com.

Safe Harbor and Fair Disclosure Statement
The statements contained in this press release that are guidance or which are not historical facts (such as statements in the future tense and statements including believe, expect, intend, plan, anticipate, goal, target and similar terms and concepts), including all discussions of periods which are not yet completed, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include, but are not limited to: the risk of customer delays, changes, cancellations or forecast inaccuracies in both ongoing and new programs; the lack of visibility of future orders, particularly in view of changing economic conditions; the economic performance of the industries, sectors and customers we serve; the effects of shortages and delays in obtaining components as a result of economic cycles, natural disasters or otherwise; the effects of tariffs and other trade protection measures; the effects of the volume of revenue from certain sectors or programs on our margins in particular periods; our ability to secure new customers, maintain our current customer base and deliver product on a timely basis; the particular risks relative to new or recent customers, programs or services, which risks include customer and other delays, start-up costs, potential inability to execute, the establishment of appropriate terms of agreements, and the lack of a track record of order volume and timing; the risks of concentration of work for certain customers; the effect of start-up costs of new programs and facilities; possible unexpected costs and operating disruption in transitioning programs, including transitions between Company facilities; the risk that new program wins and/or customer demand may not result in the expected revenue or profitability; the fact that customer orders may not lead to long-term relationships; our ability to manage successfully and execute a complex business model characterized by high product mix, low volumes and demanding quality, regulatory, and other requirements; the ability to realize anticipated savings from restructuring or similar actions, as well as the adequacy of related charges as compared to actual expenses; increasing regulatory and compliance requirements; risks related to information technology systems and data security; the effects of U.S. Tax Reform and of related foreign jurisdiction tax developments; current or potential future barriers to the repatriation of funds that are currently held outside of the United States as a result of actions taken by other countries or otherwise; the potential effects of jurisdictional results on our taxes, tax rates, and our ability to use deferred tax assets and net operating losses; the risks associated with excess and obsolete inventory, including the risk that inventory purchased on behalf of our customers may not be consumed or otherwise paid for by the customer, resulting in an inventory write-off; the weakness of areas of the global economy; the effect of changes in the pricing and margins of products; raw materials and component cost fluctuations; the potential effect of fluctuations in the value of the currencies in which we transact business; the effects of changes in economic conditions, political conditions, and tax matters in the United States and in the other countries in which we do business (including as a result of the United Kingdom’s pending exit from the European Union); the potential effect of other world or local events or other events outside our control (such as changes in energy prices, terrorism and weather events); the impact of increased competition; changes in financial accounting standards; and other risks detailed herein and in our other Securities and Exchange Commission filings (particularly in "Risk Factors" in our fiscal 2018 Form 10-K).

PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
           
  Three Months Ended   Six Months Ended
  Mar 30,   Mar 31,   Mar 30,   Mar 31,
  2019   2018   2019   2018
Net sales $ 789,051     $ 698,651     $ 1,554,595     $ 1,375,945  
Cost of sales 718,415     645,699     1,411,576     1,259,470  
Gross profit 70,636     52,952     143,019     116,475  
Selling and administrative expenses 37,462     35,637     72,894     67,603  
Operating income 33,174     17,315     70,125     48,872  
Other income (expense):              
Interest expense (3,145 )   (3,547 )   (5,394 )   (7,272 )
Interest income 440     1,426     965     2,981  
Miscellaneous, net (1,773 )   (477 )   (2,885 )   (823 )
Income before income taxes 28,696     14,717     62,811     43,758  
Income tax expense 3,938     2,427     15,827     129,961  
Net income (loss) $ 24,758     $ 12,290     $ 46,984     $ (86,203 )
Earnings (loss) per share:              
Basic $ 0.81     $ 0.37     $ 1.52     $ (2.57 )
Diluted $ 0.79     $ 0.36     $ 1.48     $ (2.57 )
Weighted average shares outstanding:              
Basic 30,603     33,538     31,003     33,552  
Diluted 31,385     34,387     31,836     33,552  


PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
       
  Mar 30,   Sept 29,
  2019   2018
ASSETS      
Current assets:      
Cash and cash equivalents $ 184,028     $ 297,269  
Restricted cash 331     417  
Accounts receivable 445,053     394,827  
Contract assets 86,803      
Inventories 802,261     794,346  
Prepaid expenses and other 30,987     30,302  
Total current assets   1,549,463       1,517,161  
Property, plant and equipment, net 373,918     341,306  
Deferred income taxes 10,889     10,825  
Intangible assets 7,511     8,239  
Other 59,070     55,111  
Total non-current assets   451,388       415,481  
Total assets $ 2,000,851     $ 1,932,642  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt and capital lease obligations $ 93,197     $ 5,532  
Accounts payable 476,481     506,322  
Customer deposits 129,068     90,782  
Accrued salaries and wages 52,939     66,874  
Other accrued liabilities 92,989     68,163  
Total current liabilities   844,674       737,673  
Long-term debt and capital lease obligations, net of current portion 187,120     183,085  
Accrued income taxes payable 58,296     56,130  
Deferred income taxes 14,991     14,376  
Other liabilities 20,326     20,235  
Total non-current liabilities   280,733       273,826  
Total liabilities   1,125,407       1,011,499  
Shareholders’ equity:      
Common stock, $.01 par value, 200,000 shares authorized,      
52,832 and 52,567 shares issued, respectively,      
and 30,241 and 31,838 shares outstanding, respectively 528     526  
Additional paid-in-capital 586,279     581,488  
Common stock held in treasury, at cost, 22,591 and 20,729, respectively (817,435 )   (711,138 )
Retained earnings 1,117,045     1,062,246  
Accumulated other comprehensive loss (10,973 )   (11,979 )
Total shareholders’ equity   875,444       921,143  
Total liabilities and shareholders’ equity $ 2,000,851     $ 1,932,642  
       


PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 1
(in thousands, except per share data)
(unaudited)
                     
    Three Months Ended   Six Months Ended
    Mar 30,   Dec 29,   March 31,   Mar 30,   March 31,
    2019   2018   2018   2019   2018
Gross profit, as reported $ 70,636     $ 72,383     $ 52,952     $ 143,019     $ 116,475  
Gross margin, as reported 9.0 %   9.5 %   7.6 %   9.2 %   8.5 %
                                         
Non-GAAP adjustments:                                      
  One-time employee bonus (1)         12,590         12,590  
Adjusted gross profit $ 70,636     $ 72,383     $ 65,542     $ 143,019     $ 129,065  
Adjusted gross margin 9.0 %   9.5 %   9.4 %   9.2 %   9.4 %
                                         
Operating income, as reported 33,174     36,951     17,315     70,125     48,872  
Operating margin, as reported 4.2 %   4.8 %   2.5 %   4.5 %   3.6 %
                                         
Non-GAAP adjustments:                                      
  One-time employee bonus (1)         13,512         13,512  
Adjusted operating income $ 33,174     $ 36,951     $ 30,827     $ 70,125     $ 62,384  
Adjusted operating margin 4.2 %   4.8 %   4.4 %   4.5 %   4.5 %
                     
Net income (loss), as reported $ 24,758     $ 22,226     $ 12,290     $ 46,984     $ (86,203 )
                     
Non-GAAP adjustments:                  
  One-time employee bonus, net of tax (1)         13,176         13,176  
  Non-recurring tax impacts (2)     7,035         7,035     124,512  
Adjusted net income $ 24,758     $ 29,261     $ 25,466     $ 54,019     $ 51,485  
                     
Diluted weighted average shares outstanding, as reported 31,385     32,286     34,387     31,836     33,552  
Diluted weighted average shares outstanding, as adjusted (3) 31,385     32,286     34,387     31,836     34,487  
                     
Diluted earnings (loss) per share, as reported $ 0.79     $ 0.69     $ 0.36     $ 1.48     $ (2.57 )
                     
Non-GAAP per share adjustments:                  
  One-time employee bonus, net of tax (1)         0.38         0.38  
  Impact of dilutive shares excluded from GAAP results due to the net loss position (3)                 0.09  
  Non-recurring tax impacts (2)     0.22         0.22     3.59  
Adjusted diluted earnings per share $ 0.79     $ 0.91     $ 0.74     $ 1.70     $ 1.49  
                     
(1 ) During the three months ended March 31, 2018, a $13.5 million one-time non-executive employee bonus was paid; of this amount, $12.6 million was recorded in cost of sales and $0.9 million was recorded in selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.
(2 ) During the three months ended December 29, 2018, non-recurring tax expense of $7.0 million was recorded in accordance with new regulations issued in November 2018 under U.S. Tax Reform.  These regulations impacted the treatment of foreign taxes paid.
  During the six months ended March 31, 2018, $124.5 million of tax expense was recorded as a result of the enactment of U.S. Tax Reform. The results for the three months ended March 31, 2018, were not impacted by U.S. Tax Reform as the provisional amounts recorded in the three months ended December 30, 2017, remained unchanged at that time.
(3 ) For the six months ended March 31, 2018, the total weighted average number of potentially-dilutive securities was 2.0 million. However, these securities were not included in the computation of GAAP diluted net loss per share since to do so would have decreased the loss per share. No shares were excluded in any of the other reported periods.


PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 2
 (in thousands)
(unaudited)
           
ROIC and Economic Return Calculations Six Months Ended   Three Months Ended   Six Months Ended
  Mar 30,   Dec 29,   Mar 31,
  2019   2018   2018
Operating income, as reported   $ 70,125       $ 36,951       $ 48,872  
One-time employee bonus +     +     + 13,512  
Adjusted operating income   $ 70,125       $ 36,951       $ 62,384  
  x 2     x 4     x 2  
                 
                 
Adjusted annualized operating income   $ 140,250       $ 147,804       $ 124,768  
Adjusted effective tax rate x 15 %   x 15 %   x 11 %
Tax impact   21,038       22,171       13,724  
Adjusted operating income (tax effected)   $ 119,212       $ 125,633       $ 111,044  
                             
Average invested capital ÷ $ 898,929     ÷ $ 862,528     ÷ $ 709,764  
                             
ROIC   13.3 %     14.6 %     15.6 %
Weighted average cost of capital - 9.0 %   - 9.0 %   - 9.5 %
Economic return   4.3 %     5.6 %     6.1 %
                       


      Three Months Ended
Average Invested Capital Mar 30,   Dec 29,   Sept 29,   Jun 30,   Mar 31,   Dec 30,   Sept 30,
Calculations 2019
  2018
  2018
  2018
  2018
  2017
  2017
Equity $ 875,444     $ 905,163     $ 921,143     $ 882,360     $ 920,503     $ 933,849     $ 1,025,939  
Plus:                          
Debt - current 93,197     8,633     5,532     6,365     180,772     179,881     286,934  
Debt - long-term 187,120     187,567     183,085     180,204     27,217     26,047     26,173  
Less:                          
Cash and cash equivalents (184,028 )   (188,799 )   (297,269 )   (332,723 )   (402,470 )   (506,694 )   (568,860 )
  $ 971,733     $ 912,564     $ 812,491     $ 736,206     $ 726,022     $ 633,083     $ 770,186  
                                                       

 

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