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Plexus Announces Fiscal Fourth Quarter and Fiscal Year 2019 Financial Results

DATE: 23 Oct 2019

• Record fiscal fourth quarter revenue of $810 million and record fiscal 2019 revenue of $3.2 billion
• Fiscal fourth quarter GAAP diluted EPS of $1.23, including $0.19 of stock-based compensation expense
• Non-GAAP adjusted diluted EPS of $0.93, excluding a non-cash benefit of $0.35 per share related to special tax items and a charge of $0.05 per share related to restructuring activities
• Initiates fiscal first quarter 2020 revenue guidance of $780 to $820 million with GAAP diluted EPS of $0.87 to $0.97
 
NEENAH, WI – October 23, 2019 - Plexus (NASDAQ: PLXS) today announced financial results for its fiscal fourth quarter ended September 28, 2019, and guidance for its fiscal first quarter ending January 4, 2020.
 

                                                           Three Months Ended  
                                                      Sept 28, 2019     Sept 28, 2019   Jan 4, 2020
                  Q4F19 Results   Q4F19 Guidance (3)   Q1F20 Guidance  
Summary GAAP Items            
Revenue (in millions)               $810     $760 to $800   $780 to $820  
Operating margin               4.6%                        See note (3)   4.5% to 4.9%  
Diluted EPS (1)               $1.23                        See note (3)   $0.87 to $0.97  
               
Summary Non-GAAP Items (2)            
Adjusted operating margin                4.8%                       See note (3)            
Adjusted diluted EPS (1)                $0.93                        See note (3)      
Return on invested capital (ROIC)                13.1%            
Economic Return                 4.1%            
               
(1) Includes stock-based compensation expense of $0.19 for Q4F19 results and $0.18 for Q4F19 and Q1F20 guidance.  
(2) Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures and a reconciliation to GAAP.  
                             
(3)   Q4F19 guidance, issued on July 17, 2019, for operating margin of 4.5% to 4.9% and diluted EPS of $0.81 to $0.91 did not include the impact of $10.5 million in special tax benefits, or $0.35 per share, and $1.7 million ($1.5 million after tax), or $0.05 per share, of restructuring charges.  
 
Fiscal Fourth Quarter 2019 Information
• Won 35 manufacturing programs during the quarter representing $202 million in annualized revenue when fully ramped into production
• Trailing four quarter wins total $907 million in annualized revenue when fully ramped into production
• Purchased $31.4 million of our shares at an average price of $58.38 per share under our existing share repurchase programs

Fiscal Year 2019 Information
• Revenue of $3.2 billion, up 10% from fiscal 2018
• GAAP diluted EPS of $3.50
• Non-GAAP adjusted diluted EPS of $3.43, excluding a net benefit of $0.12 per share related to special tax items and a charge of $0.05 per share related to restructuring activities
• ROIC of 13.1%, delivering an economic return of 410 basis points above our weighted average cost of capital
Purchased $182 million of our shares at an average price of $57.19 per share under our existing share repurchase programs

Todd Kelsey, President and CEO, commented, “I am pleased with our strong performance in the fiscal fourth quarter.  We delivered record revenue of $810 million, which exceeded the top end of our guidance range.  Our Aerospace/Defense and Industrial/Commercial sectors were exceptionally strong in the quarter, delivering 15% and 6% quarter-over-quarter revenue growth, respectively.  In addition, we achieved fiscal 2019 revenue of $3.2 billion, representing a 10% increase over fiscal 2018 and marking the second consecutive year of double-digit growth.  This growth was led by our Aerospace/Defense and Healthcare/Life Sciences sectors, whose revenue increased 32% and 17%, respectively, from the previous fiscal year.  The combination of these two sectors now represents approximately 60% of our overall revenue.”
 
Patrick Jermain, Executive Vice President and CFO, commented, “Fiscal fourth quarter GAAP diluted EPS of $1.23 included $0.35 per share related to special tax benefits.  Our fiscal fourth quarter GAAP results also included after-tax restructuring charges of $1.5 million, or $0.05 per share, primarily related to actions taken to address revenue declines within our Communications sector.  These actions were completed in the fiscal fourth quarter.”
 
Mr. Kelsey continued, “Through our continued focus on productivity and exceptional execution, our teams achieved fiscal fourth quarter adjusted operating margin of 4.8%, comfortably within our target range of 4.7% to 5.0% and at the higher end of our guidance range.  Our robust growth and operating performance led to non-GAAP diluted EPS of $0.93, a result that was above our guidance range.” 
 
Mr. Jermain continued, “During the fiscal fourth quarter, we generated $92 million in free cash flow, a result above our projections.  Fiscal fourth quarter cash cycle of 80 days was favorable to our expectations and sequentially lower by 9 days, as we benefited from continued progress on our working capital initiatives.  Over the past two quarters, we have reduced our inventory balance by over $100 million, largely due to our success with these initiatives.” 
 
Mr. Kelsey concluded, “As we look to the fiscal first quarter of 2020, we expect continued sound operating performance and are guiding revenue of $780 to $820 million with operating margin in the range of 4.5% to 4.9%.  At this revenue level, we anticipate GAAP diluted EPS in the range of $0.87 to $0.97, including $0.18 of stock-based compensation expense.  Further, we are focused on delivering fiscal 2020 operating margin performance within our target range of 4.7% to 5.0%, which would enable solid EPS growth in the fiscal year.”
 
Quarterly & Annual Comparison Three Months Ended   Twelve Months Ended
  Sept 28, 2019   Jun 29, 2019   Sept 29, 2018   Sept 28, 2019   Sept 29, 2018
(in thousands, except EPS) Q4F19   Q3F19   Q4F18   F19   F18
Revenue $ 810,195     $ 799,644     $ 771,178     $ 3,164,434     $ 2,873,508  
Gross profit 77,789     71,030     73,304     291,838     257,600  
Operating income 37,527     34,403     36,965     142,055     118,283  
Net income 36,831     24,801     72,742     108,616     13,040  
Diluted EPS $ 1.23     $ 0.81     $ 2.20     $ 3.50     $ 0.38  
Adjusted net income (1) 27,788     24,801   31,615     106,608     109,600  
Adjusted diluted EPS (1) $ 0.93     $0.81   $ 0.96     $ 3.43     $ 3.23  
                   
Gross margin              9.6%                  8.9%                  9.5%                  9.2%                  9.0%  
Operating margin              4.6%                  4.3%                  4.8%                  4.5%                  4.1%  
Adjusted operating margin (1)              4.8%                4.3%                        4.8%                          4.5%                  4.6%  
                   
ROIC (1)            13.1%                12.9%                16.1%                13.1%                16.1%  
Economic Return (1)              4.1%                  3.9%                  6.6%                  4.1%                  6.6%  
                   
(1) Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures discussed and/or disclosed in this release, such as adjusted operating margin, adjusted net income, adjusted diluted EPS, ROIC and Economic Return, and a reconciliation of these measures to GAAP.
 
 
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 market sector focused strategy.  Top 10 customers comprised 51% of revenue during the fiscal fourth quarter, down three percentage points from the fiscal third quarter of 2019, and 55% of revenue during fiscal year 2019, down two percentage points from the prior fiscal year.
 
Business Segments ($ in millions) Three Months Ended   Twelve Months Ended
  Sept 28, 2019   Sept 29, 2018   Sept 28, 2019   Sept 29, 2018
Americas $ 344     $ 320     $ 1,429     $ 1,219  
Asia-Pacific 416   418   1,557   1,498
Europe, Middle East, and Africa 81   69   310   281
Elimination of inter-segment sales (31)   (36)   (132)   (124)
Total Revenue $ 810     $ 771     $ 3,164     $ 2,874  
 
 
Market Sectors ($ in millions) Three Months Ended   Twelve Months Ended
  Sept 28, 2019 Q4F19   Jun 29, 2019 Q3F19   Sept 29, 2018 Q4F18   Sept 28, 2019 F19   Sept 29, 2018 F18
Healthcare/Life Sciences $ 311   38%     $ 309   39%     $ 289   37%     $ 1,220   38%     $ 1,040   36%  
Industrial/Commercial 264   33%     248   31%     244   32%     981   31%     918   32%  
Aerospace/Defense 174   21%     151   19%     120   16%     588   19%     445   16%  
Communications 61   8%     92   11%     118   15%     375   12%     471   16%  
Total Revenue $ 810       $ 800       $ 771       $ 3,164       $ 2,874    
                             
 
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 operating income, adjusted operating margin, 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 restructuring costs, the one-time non-executive employee bonus paid in the second quarter of fiscal 2018, special tax items and the transitional effects of the U.S. Tax Cuts & Jobs Act (“U.S. Tax Reform”) that 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 both fiscal 2019 and the fiscal fourth quarter was 13.1%.  The Company defines ROIC as tax-effected annualized adjusted operating income divided by average invested capital over a five-quarter period for the fiscal year and fiscal fourth quarter.  Invested capital is defined as equity plus debt, less cash and cash equivalents.  The Company’s weighted average cost of capital for fiscal 2019 was 9%.  ROIC for both fiscal 2019 and the fiscal fourth quarter less the Company’s weighted average cost of capital resulted in an economic return of 4.1%.
 
Free Cash Flow
The Company defines free cash flow as cash flows provided by operations less capital expenditures.  For the three months ended September 28, 2019, cash flows provided by operations was $108.3 million, less capital expenditures of $16.0 million, resulting in free cash flow of $92.3 million.  For the fiscal year ended September 28, 2019, cash flows provided by operations was $115.3 million, less capital expenditures of $90.6 million, resulting in free cash flow of $24.7 million.
 
Cash Cycle Days Three Months Ended
  Sept 28, 2019 Q4F19   Jun 29, 2019 Q3F19   Sept 29, 2018 Q4F18
Days in Accounts Receivable 55   52   47
Days in Contract Assets (1) 10   12   -
Days in Inventory (1) 87   95   104
Days in Accounts Payable (55)   (54)   (66)
Days in Cash Deposits (17)   (16)   (12)
Annualized Cash Cycle (1) 80   89   73
(1) The Company calculates 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 September 28, 2019 and June 29, 2019, cash cycle days include contract assets and 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 Q4 Earnings Conference Call and Webcast
When: Thursday, October 24, 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 fourth quarter 2019 results will also be made available ahead of the conference call.
 
Conference call at +1.800.708.4540 with passcode: 49048870
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: 49048870
 
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
           
  Three Months Ended   Twelve Months Ended
  Sept 28,   Sept 29,   Sept 28,   Sept 29,
  2019   2018   2019   2018
Net sales $ 810,195     $ 771,178     $ 3,164,434     $ 2,873,508  
Cost of sales 732,406     697,874     2,872,596     2,615,908  
Gross profit 77,789   73,304   291,838   257,600
Operating expenses:              
Selling and administrative expenses 38,584     36,339     148,105     139,317  
Restructuring and impairment charges 1,678         1,678      
Operating income 37,527   36,965   142,055   118,283
Other income (expense):              
Interest expense (3,748)     (2,044)     (12,853)     (12,226)  
Interest income 539     647     1,949     4,696  
Miscellaneous (892)     (1,268)     (5,196)     (3,143)  
Income before income taxes 33,426   34,300   125,955   107,610
Income tax (benefit) expense (3,405)     (38,442)     17,339     94,570  
Net income $ 36,831     $ 72,742     $ 108,616     $ 13,040  
Earnings per share:              
Basic $ 1.26     $ 2.27     $ 3.59     $ 0.40  
Diluted $ 1.23     $ 2.20     $ 3.50     $ 0.38  
Weighted average shares outstanding:              
Basic 29,181   32,113   30,271   33,003
Diluted 30,001     33,020     31,074     33,919  
 
 
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
       
  Sept 28,   Sept 29,
  2019   2018
ASSETS      
Current assets:      
Cash and cash equivalents $ 223,761     $ 297,269  
Restricted cash 2,493     417  
Accounts receivable 488,284     394,827  
Contract assets 90,841      
Inventories 700,938     794,346  
Prepaid expenses and other 31,974     30,302  
Total current assets 1,538,291   1,517,161
Property, plant and equipment, net 384,224     341,306  
Deferred income taxes 13,654     10,825  
Other 64,714     63,350  
Total non-current assets 462,592   415,481
Total assets $ 2,000,883     $ 1,932,642  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt and capital lease obligations $ 100,702     $ 5,532  
Accounts payable 444,944     506,322  
Customer deposits 139,841     90,782  
Accrued salaries and wages 73,555     66,874  
Other accrued liabilities 106,461     68,163  
Total current liabilities 865,503   737,673
Long-term debt and capital lease obligations, net of current portion 187,278     183,085  
Accrued income taxes payable 59,572     56,130  
Deferred income taxes 5,305     14,376  
Other liabilities 17,649     20,235  
Total non-current liabilities 269,804   273,826
Total liabilities 1,135,307   1,011,499
Shareholders’ equity:      
Common stock, $.01 par value, 200,000 shares authorized,      
52,917 and 52,567 shares issued, respectively,      
and 29,004 and 31,838 shares outstanding, respectively 529     526  
Additional paid-in-capital 597,401     581,488  
Common stock held in treasury, at cost, 23,913 and 20,729, respectively (893,247)     (711,138)  
Retained earnings 1,178,677     1,062,246  
Accumulated other comprehensive loss (17,784)     (11,979)  
Total shareholders’ equity 865,576   921,143
Total liabilities and shareholders’ equity $ 2,000,883     $ 1,932,642  
       
 
 
PLEXUS CORP. AND SUBSIDIARIES  
NON-GAAP SUPPLEMENTAL INFORMATION Table 1  
(in thousands, except per share data)  
(unaudited)  
                       
    Three Months Ended   Twelve Months Ended  
    Sept 28,   Jun 29,   Sept 29   Sept 28,   Sept 29  
    2019   2019   2018   2019   2018  
Operating income, as reported $ 37,527     $ 34,403     $ 36,965     $ 142,055     $ 118,283    
Operating margin, as reported         4.6%             4.3%             4.8%             4.5%             4.1%    
                       
Non-GAAP adjustments:                    
Restructuring costs (1) 1,678             1,678        
One-time employee bonus (2)                 13,512    
Adjusted operating income $ 39,205     $ 34,403     $ 36,965     $ 143,733     $ 131,795    
Adjusted operating margin         4.8%             4.3%             4.8%             4.5%             4.6%    
                       
Net income, as reported $ 36,831     $ 24,801     $ 72,742     $ 108,616     $ 13,040    
                       
Non-GAAP adjustments:                    
Restructuring costs, net of tax (1) 1,502         1,502      
One-time employee bonus, net of tax (2)                 13,176    
U.S. Tax Reform (3)         (41,127)     7,035     83,384    
Accumulated foreign earnings assertion (4) (10,545)             (10,545)        
Adjusted net income $ 27,788     $ 24,801     $ 31,615     $ 106,608     $ 109,600    
                       
Diluted earnings per share, as reported $ 1.23     $ 0.81     $ 2.20     $ 3.50     $ 0.38    
                       
Non-GAAP per share adjustments:                    
Restructuring costs, net of tax (1) 0.05             0.05        
One-time employee bonus, net of tax (2)                 0.39    
U.S. Tax Reform (3)         (1.24)     0.23     2.46    
Accumulated foreign earnings assertion (4) (0.35)             (0.35)        
Adjusted diluted earnings per share $ 0.93     $ 0.81     $ 0.96     $ 3.43     $ 3.23    
                       
(1) During the three months ended September 28, 2019, restructuring costs of $1.7 million, $1.5 million net of taxes, were incurred.   
(2) During the twelve months ended September 29, 2018, a $13.5 million one-time 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.  
(3) During the twelve months ended September 28, 2019, special 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 three months ended September 29, 2018, special tax benefits of $38.6 million resulted primarily from the use of then-current year tax losses and net operating loss carryforwards against the deemed repatriation tax as well as a $3.6 million benefit due to the reversal of a valuation allowance on U.S. deferred tax assets. These benefits were partially offset by a $1.1 million tax expense for other special tax items.
 
During the twelve months ended September 29, 2018, special tax expenses of $85.9 million and $1.1 million were recorded as a result of U.S. Tax Reform and other special tax items, respectively, which were partially offset by a $3.6 million tax benefit from the reversal of a valuation allowance on U.S. deferred tax assets.
 
(4) During the three and twelve months ended September 28, 2019, the Company reasserted that certain historical undistributed earnings of two foreign subsidiaries will be permanently reinvested, which resulted in a $10.5 million benefit.  
 
 
PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 2
 (in thousands)
(unaudited)
           
ROIC and Economic Return Calculations Twelve Months Ended   Nine Months Ended   Twelve Months Ended
  Sept 28,   Jun 29,   Sept 29,
  2019   2019   2018
Operating income, as reported   $ 142,055       $ 104,528       $ 118,283  
Restructuring costs + 1,678     +     +  
One-time employee bonus +     +     + 13,512  
Adjusted operating income   $ 143,733       $ 104,528       $ 131,795  
        ÷ 3        
          $ 34,843        
        x 4        
Adjusted annualized operating income   $ 143,733       $ 139,372       $ 131,795  
Adjusted effective tax rate x 16%     x 15%     x 10%  
Tax impact   22,997       20,906       13,180  
Adjusted operating income (tax effected)   $ 120,736       $ 118,466       $ 118,615  
                 
Average invested capital ÷ $ 923,107     ÷ $ 921,435     ÷ $ 735,598  
                 
ROIC   13.1%       12.9%       16.1%  
Weighted average cost of capital - 9.0%     - 9.0%     - 9.5%  
Economic return   4.1%       3.9%       6.6%  
 
  Three Months Ended
Average Invested Capital Sept 28,   Jun 29,   Mar 30,   Dec 29,   Sept 29,
Calculations 2019   2019   2019   2018   2018
Equity $ 865,576     $ 860,791     $ 875,444     $ 905,163     $ 921,143  
Plus:                  
Debt - current 100,702   138,976   93,197   8,633   5,532
Debt - long-term 187,278   187,581   187,120   187,567   183,085
Less:                  
Cash and cash equivalents (223,761)   (198,395)   (184,028)   (188,799)   (297,269)
  $ 929,795     $ 988,953     $ 971,733     $ 912,564     $ 812,491  
 
  Three Months Ended
Average Invested Capital Jun 30,   Mar 31,   Dec 30,   Sept 30,
Calculations 2018   2018   2017   2017
Equity $ 882,360     $ 920,503     $ 933,849     $ 1,025,939  
Plus:              
Debt - current 6,365   180,772   179,881   286,934
Debt - long-term 180,204   27,217   26,047   26,173
Less:              
Cash and cash equivalents (332,723)   (402,470)   (506,694)   (568,860)
  $ 736,206     $ 726,022     $ 633,083     $ 770,186  

INVESTOR AND MEDIA CONTACT:

Heather Beresford
+1.920.751.3612
heather.beresford@plexus.com


About Plexus
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 environments.  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, trade disputes, trade agreements 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 risks of concentration of work for certain customers;  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 effects 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 and demanding quality, regulatory, and other requirements; 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; risks related to information technology systems and data security; 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 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 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; an inability to successfully manage human capital; 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.