Press Release

Plexus Announces Fiscal Second Quarter 2017 Financial Results

Date:
April 19, 2017
  • Fiscal second quarter 2017 revenue of $604 million
  • GAAP diluted EPS of $0.84
  • Initiates fiscal third quarter 2017 revenue guidance of $595 to $625 million with GAAP diluted EPS of $0.68 to $0.76

 

NEENAH, WI – April 19, 2017 – Plexus (NASDAQ: PLXS) today announced financial results for its fiscal second quarter ended April 1, 2017, and guidance for its fiscal third quarter ending July 1, 2017.

 

 

 

Three Months Ended

 

 

Apr 1, 2017

 

Apr 1, 2017

 

Jul 1, 2017

 

 

Q2F17 Results

 

Q2F17 Guidance

 

Q3F17 Guidance

Summary GAAP Items

 

 

 

 

 

Revenue (in millions)

$604

 

 

$620 to $650

 

$595 to $625

Operating margin

5.4

%

 

4.9% to 5.2%

 

4.8% to 5.2%

Diluted EPS (1)

$0.84

 

 

$0.71 to $0.79

 

$0.68 to $0.76

 

 

 

 

 

 

 

Summary Non-GAAP Items (2)

 

 

 

 

 

Return on Invested Capital (ROIC)

16.8

%

 

 

 

 

Economic Return

6.3

%

 

 

 

 

(1)

Includes stock-based compensation expense of $0.13 for Q2F17 results and $0.13 for Q3F17 guidance.

(2)

Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures discussed in this release, such as ROIC and Economic Return, and a reconciliation of these measures to GAAP.

 

 

Fiscal Second Quarter 2017 Information

  • Won 26 Manufacturing Solutions programs during the quarter representing approximately $202 million in annualized revenue when fully ramped into production
  • Trailing four quarter Manufacturing Solutions wins total approximately $813 million in annualized revenue
  • Purchased $6.8 million of our shares at an average price of $55.61 per share

 

Todd Kelsey, President and CEO, commented, “We delivered GAAP diluted EPS of $0.84, $0.05 above the top end of our guidance range.  Robust productivity improvements, favorable product mix, and exceptional engineering solutions performance all contributed.  We delivered solid earnings despite weaker than anticipated sales within our Communications market sector, resulting in revenue of $604 million.”

 

Mr. Kelsey continued, “Looking ahead to the fiscal third quarter, we currently expect that continued end-market weakness within our Communications market sector and a forecast adjustment with a large Industrial/Commercial customer will offset meaningful growth within the remainder of our business.  As a result, we are guiding revenue in the range of $595 million to $625 million.  When coupled with anticipated operating margin performance at the high end of our target range, we expect fiscal third quarter 2017 GAAP diluted EPS to be in the range of $0.68 to $0.76.” 

 

Patrick Jermain, Senior Vice President and CFO, commented, “During the fiscal second quarter, we further improved our operating performance, delivering GAAP operating margin of 5.4%.  We believe our strong operating performance over the last several quarters will continue and are guiding GAAP operating margin in the range of 4.8% to 5.2% for the fiscal third quarter.”

 

Mr. Jermain continued, “Return on Invested Capital was 16.8% for the fiscal second quarter, 630 basis points above our weighted average cost of capital.  We were pleased to generate this level of return given the challenging revenue environment, which negatively impacted our cash cycle days.  While accounts receivable days sequentially improved, inventory days increased significantly, primarily due to lower than anticipated revenue and increased inventory to support ramping new programs.  Prudent management of capital expenditures during the quarter offset higher working capital, resulting in a similar level of invested capital to the prior quarter.  Through the first six months of fiscal 2017, we have exceeded our cash flow expectations by delivering more than $90 million in free cash flow.”

 

Mr. Kelsey concluded, “While we are mindful of the near-term revenue challenges, we remain confident in our longer term outlook for achieving meaningful growth.  Our funnel of qualified manufacturing opportunities reached a record of $3 billion this quarter and our wins in both manufacturing and engineering continue to exceed our goals as we gain share with key customers and grow our underlying business.”

 

Quarterly Comparison

Three Months Ended

 

Apr 1, 2017

 

Dec 31, 2016

 

Apr 2, 2016

(in thousands, except EPS)

Q2F17

 

Q1F17

 

Q2F16

Revenue

$604,349

 

 

$635,019

 

 

$618,660

 

Gross profit

$63,800

 

 

$64,356

 

 

$53,272

 

Operating profit

$32,571

 

 

$33,903

 

 

$23,346

 

Net income

$29,295

 

 

$28,179

 

 

$16,787

 

Diluted EPS

$0.84

 

 

$0.82

 

 

$0.50

 

Adjusted net income*

$29,295

 

 

$28,179

 

 

$18,704

 

Adjusted diluted EPS*

$0.84

 

 

$0.82

 

 

$0.55

 

 

 

 

 

 

 

Gross margin

10.6

%

 

10.1

%

 

8.6

%

Operating margin

5.4

%

 

5.3

%

 

3.8

%

Adjusted operating margin*

5.4

%

 

5.3

%

 

4.1

%

 

 

 

 

 

 

ROIC*

16.8

%

 

17.3

%

 

11.6

%

Economic Return*

6.3

%

 

6.8

%

 

0.6

%

 

 

 

 

 

 

*Refer to Non-GAAP Supplemental Information Tables 1 and 2 for a reconciliation to GAAP measures.

 

Non-GAAP Financial Measures

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 operating margin, 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 that are not reflective of continuing operations.  For a full reconciliation of non-GAAP measures to comparable GAAP measures, please refer to Non-GAAP Supplemental Information and the attached Non-GAAP Supplemental Information Tables.

 

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 54% of revenue during the quarter, down six percentage points from the fiscal first quarter of 2017.

 

Business Segments ($ in millions)

Three Months Ended

 

Apr 1, 2017

Q2F17

 

Dec 31, 2016

Q1F17

 

Apr 2, 2016

Q2F16

Americas

$

272

 

 

$

315

 

 

$

330

 

Asia-Pacific

310

 

310

 

271

Europe, Middle East, and Africa

44

 

39

 

44

Elimination of inter-segment sales

(22)

 

(29)

 

(26)

Total Revenue

$

604

 

 

$

635

 

 

$

619

 

 

Market Sectors ($ in millions)

Three Months Ended

 

Apr 1, 2017

Q2F17

 

Dec 31, 2016

Q1F17

 

Apr 2, 2016

Q2F16

Healthcare/Life Sciences

$

205

 

34

%

 

$

211

 

33

%

 

$

190

 

31

%

Industrial/Commercial

192

32

%

 

206

32

%

 

169

27

%

Communications

108

18

%

 

131

21

%

 

157

25

%

Defense/Security/Aerospace

99

16

%

 

87

14

%

 

103

17

%

Total Revenue

$

604

 

 

 

$

635

 

 

 

$

619

 

 

 

Non-GAAP Supplemental Information

 

ROIC and Economic Return

ROIC for the fiscal second quarter of 2017 was 16.8%.  The Company defines ROIC as tax-effected annualized adjusted operating profit divided by average invested capital over a three-quarter period for the second quarter.  Invested capital is defined as equity plus debt, less cash and cash equivalents.  The Company’s weighted average cost of capital for fiscal 2017 is 10.5%.  ROIC for the quarter less the Company’s weighted average cost of capital resulted in an Economic Return of 6.3%.

 

Free Cash Flow Calculation

The Company defines free cash flow as cash flows provided by operations less capital expenditures.  For the three months ended April 1, 2017, cash flows provided by operations was $26.2 million, less capital expenditures of $7.7 million, resulting in free cash flow of $18.5 million.  For the six months ended April 1, 2017, cash flows provided by operations was $105.6 million, less capital expenditures of $14.6 million, resulting in free cash flow of $91.0 million.

 

Cash Cycle Days

 

Three Months Ended

 

Apr 1, 2017

Q2F17

 

Dec 31, 2016

Q1F17

 

Apr 2, 2016

Q2F16

Days in Accounts Receivable

48

 

49

 

48

Days in Inventory

103

 

90

 

91

Days in Accounts Payable

(64)

 

(60)

 

(62)

Days in Cash Deposits

(14)

 

(13)

 

(11)

Annualized Cash Cycle Days*

73

 

66

 

66

*We calculate cash cycle days as the sum of days in accounts receivable and days in inventory, less days in accounts payable and days in cash deposits.

 

Conference Call and Webcast Information

What:

Plexus Fiscal Q2 2017 Earnings Conference Call and Webcast

When:

Thursday, April 20, 2017 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, www.plexus.com, or directly at: http://edge.media-server.com/m/p/756xeit2/lan/en

 

Conference call at +1.800.708.4540 with passcode: 44538872

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: 44538872

 

Investor and Media Contact

Susan Hanson

+1.920.751.5491

susan.hanson@plexus.com

 

About Plexus – The Product Realization Company

Plexus (www.plexus.com) delivers optimized Product Realization solutions through a unique Product Realization Value Stream service model.  This customer-focused services model seamlessly integrates innovative product conceptualization, design, commercialization, manufacturing, fulfillment and sustaining services to deliver comprehensive end-to-end solutions for customers in the America, European and Asia-Pacific regions.

 

Plexus is the industry leader in servicing mid-to-low volume, higher complexity customer programs characterized by unique flexibility, technology, quality and regulatory requirements.  Award-winning customer service is provided to over 140 branded product companies in the Healthcare/Life Sciences, Industrial/Commercial, Communications and Defense/Security/Aerospace market sectors.

 

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 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 as a result of a facility closure; 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; the potential effects of regional results on our taxes and ability to use deferred tax assets and net operating losses; risks related to information technology systems and data security; the effects of shortages and delays in obtaining components as a result of economic cycles or natural disasters; 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, trade protection measures, 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 in our Securities and Exchange Commission filings (particularly in "Risk Factors" in our fiscal 2016 Form 10-K).

PLEXUS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

Apr 1,

 

Apr 2,

 

Apr 1,

 

Apr 2,

 

2017

 

2016

 

2017

 

2016

Net sales

$

604,349

 

 

$

618,660

 

 

$

1,239,368

 

 

$

1,235,324

 

Cost of sales

540,549

 

 

565,388

 

 

1,111,212

 

 

1,131,993

 

Gross profit

63,800

 

53,272

 

128,156

 

103,331

Selling and administrative expenses

31,229

 

28,009

 

61,682

 

55,037

Restructuring and other charges

 

 

1,917

 

 

 

3,424

Operating income

32,571

 

23,346

 

66,474

 

44,870

Other income (expense):

 

 

 

 

 

 

 

Interest expense

(3,262)

 

(3,674)

 

(6,536)

 

(7,208)

Interest income

1,185

 

1,015

 

2,256

 

1,947

Miscellaneous

1,925

 

(1,128)

 

1,251

 

(2,748)

Income before income taxes

32,419

 

19,559

 

63,445

 

36,861

Income tax expense

3,124

 

2,772

 

5,971

 

5,626

Net income

$

29,295

 

 

$

16,787

 

 

$

57,474

 

 

$

31,235

 

Earnings per share:

 

 

 

 

 

 

 

Basic

$

0.87

 

 

$

0.50

 

 

$

1.71

 

 

$

0.94

 

Diluted

$

0.84

 

 

$

0.50

 

 

$

1.66

 

 

$

0.92

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

33,703

 

33,319

 

33,619

 

33,368

Diluted

34,702

 

33,834

 

34,631

 

33,957

 

PLEXUS

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

Apr 1,

 

Oct 1,

 

2017

 

2016

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

524,520

 

 

$

432,964

 

Restricted cash

458

 

 

 

Accounts receivable

320,495

 

 

416,888

 

Inventories

609,709

 

 

564,131

 

Prepaid expenses and other

25,130

 

 

19,364

 

Total current assets

1,480,312

 

 

1,433,347

 

Property, plant and equipment, net

282,827

 

 

291,225

 

Deferred income taxes

4,733

 

 

4,834

 

Other

36,475

 

 

36,413

 

Total non-current assets

324,035

 

 

332,472

 

Total assets

$

1,804,347

 

 

$

1,765,819

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt and capital lease obligations

$

92,623

 

 

$

78,507

 

Accounts payable

382,312

 

 

397,200

 

Customer deposits

83,544

 

 

84,637

 

Accrued salaries and wages

38,373

 

 

41,806

 

Other accrued liabilities

44,584

 

 

48,286

 

Total current liabilities

641,436

 

 

650,436

 

Long-term debt and capital lease obligations, net of current portion

185,638

 

 

184,002

 

Other liabilities

15,835

 

 

14,584

 

Total non-current liabilities

201,473

 

 

198,586

 

Total liabilities

842,909

 

 

849,022

 

Shareholders’ equity:

 

 

 

Common stock, $.01 par value, 200,000 shares authorized,

 

 

 

51,818 and 51,272 shares issued, respectively,

 

 

 

and 33,735 and 33,457 shares outstanding, respectively

518

 

 

513

 

Additional paid-in-capital

542,705

 

 

530,647

 

Common stock held in treasury, at cost, 18,083 and 17,815, respectively

(553,874

)

 

(539,968

)

Retained earnings

994,618

 

 

937,144

 

Accumulated other comprehensive loss

(22,529

)

 

(11,539

)

Total shareholders’ equity

961,438

 

 

916,797

 

Total liabilities and shareholders’ equity

$

1,804,347

 

 

$

1,765,819

 

 

 

PLEXUS

NON-GAAP SUPPLEMENTAL INFORMATION TABLE 1

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

Three Months Ended

 

Apr 1,

 

Dec 31,

 

Apr 2,

 

2017

 

2016

 

2016

Operating profit, as reported

$

32,571

 

 

$

33,903

 

 

$

23,346

 

Operating margin, as reported

5.4

%

 

5.3

%

 

3.8

%

 

 

 

 

 

 

Non-GAAP adjustments:

 

 

 

 

 

Restructuring and other charges*

 

 

 

 

1,917

 

Adjusted operating profit

$

32,571

 

 

$

33,903

 

 

$

25,263

 

Adjusted operating margin

5.4

%

 

5.3

%

 

4.1

%

 

 

 

 

 

 

Net income

$

29,295

 

 

$

28,179

 

 

$

16,787

 

 

 

 

 

 

 

Non-GAAP adjustments:

 

 

 

 

 

Restructuring and other charges*

 

 

 

 

1,917

 

Adjusted net income

$

29,295

 

 

$

28,179

 

 

$

18,704

 

 

 

 

 

 

 

Diluted earnings per share

$

0.84

 

 

$

0.82

 

 

$

0.50

 

 

 

 

 

 

 

Non-GAAP adjustments:

 

 

 

 

 

Restructuring and other charges*

 

 

 

 

0.05

 

Adjusted diluted earnings per share

$

0.84

 

 

$

0.82

 

 

$

0.55

 

 

 

 

 

 

 

*Summary of restructuring and other charges

 

 

 

 

 

Employee termination and severance costs

$

 

 

$

 

 

$

1,656

 

Other exit costs

 

 

 

 

261

 

Total restructuring and other charges

$

 

 

$

 

 

$

1,917

 

 

 

 

 

 

 

 

 

PLEXUS

NON-GAAP SUPPLEMENTAL INFORMATION Table 2

 (in thousands)

(unaudited)

 

 

 

 

 

 

ROIC and Economic Return Calculations

Six Months Ended

 

Three Months Ended

 

Six Months Ended

 

Apr 1,

 

Dec 31,

 

Apr 2,

 

2017

 

2016

 

2016

Operating profit, as reported

 

$

66,474

 

 

 

$

33,903

 

 

 

$

44,870

 

   Restructuring and other charges

+

 

 

+

 

 

+

3,424

 

Adjusted operating profit

 

$

66,474

 

 

 

$

33,903

 

 

 

$

48,294

 

 

x

2

 

 

x

4

 

 

x

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annualized adjusted operating profit

 

$

132,948

 

 

 

$

135,612

 

 

 

$

96,588

 

Tax rate

x

9

%

 

x

8

%

 

x

11

%

Tax impact

 

11,965

 

 

 

10,849

 

 

 

10,625

 

Adjusted operating profit (tax effected)

 

$

120,983

 

 

 

$

124,763

 

 

 

$

85,963

 

 

 

 

 

 

 

 

 

 

Average invested capital

÷

$

718,524

 

 

÷

$

720,197

 

 

÷

$

743,112

 

 

 

 

 

 

 

 

 

 

ROIC

 

16.8

%

 

 

17.3

%

 

 

11.6

%

Weighted average cost of capital

-

10.5

%

 

-

10.5

%

 

-

11.0

%

Economic return

 

6.3

%

 

 

6.8

%

 

 

0.6

%

 

 

Three Months Ended

Average Invested Capital

Apr 1,

 

Dec 31,

 

Oct 1,

 

Jul 2,

 

Apr 2,

 

Jan 2,

 

Oct 3,

Calculations

2017

 

2016

 

2016

 

2016

 

2016

 

2016

 

2015

Equity

$

961,438

 

 

$

927,542

 

 

$

916,797

 

 

$

895,175

 

 

$

871,111

 

 

$

850,794

 

 

$

842,272

 

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt - current

92,623

 

78,879

 

78,507

 

78,279

 

2,300

 

2,864

 

3,513

Debt - long-term

185,638

 

184,136

 

184,002

 

184,479

 

259,565

 

259,289

 

259,257

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

(524,520)

 

(496,505)

 

(432,964)

 

(433,679)

 

(409,796)

 

(354,728)

 

(357,106)

 

$

715,179

 

 

$

694,052

 

 

$

746,342

 

 

$

724,254

 

 

$

723,180

 

 

$

758,219

 

 

$

747,936