Plexus Corp.’s (PLXS) reported mixed fourth-quarter fiscal 2014 results. While earnings per share (EPS) of 78 cents were in line with the Zacks Consensus Estimate, revenues managed to beat the same. Plexus provided cautious earnings per share guidance for the first quarter of fiscal 2015.
Revenues
Revenues increased 17.3% year over year to $666.2 million and beat the Zacks Consensus Estimate of $662 million. This year-over-year rise in revenues was primarily attributable to robust performance by all segments. Revenues came above management’s guided range of $600.0 to $630.0 million.
Revenues from the Networking/Communications sector (35% of revenues) increased 18.8% year over year to $234 million in the reported quarter.
Healthcare/Life Sciences (28% of revenues) reported a better-than-expected quarter. Revenues increased 18.9% from the year-ago quarter to $189 million in the fourth quarter.
Industrial/Commercial (23% of revenues) increased 5% from the year ago quarter to $150 million.
The Defense/Security/Aerospace segment (14% revenues) rebounded in the quarter. Revenues increased 34.7% on a year over year basis to $93 million.
During the quarter, the company won 41 new programs in its Manufacturing Solutions group. Plexus anticipates these wins to generate approximately $170 million in annualized revenues once production commences.
Geography-wise, Americas accounted for 55% of total revenue while Asia-Pacific accounted for the remaining 45%.
Margins
Gross margin contracted 20 basis points (bps) from the year ago quarter to 9.4%. Selling & administrative expense as a percentage of revenues declined 30 bps from the year-ago quarter. Restructuring & impairment charges amounted to $415 million in the reported quarter from nil in the year-ago quarter.
Operating margin expanded 10 bps from the year-ago quarter to 4.8% in the fourth quarter of fiscal 2014.
Net income jumped 8.1% year over year to $26.5 million. Earnings (excluding restructuring and impaired charges and discrete tax benefit) increased 8% year over year to 78 cents, in line with the midpoint of management’s guidance range of 74 to 80 cents.
New Facility
During the quarter, Plexus opened its new manufacturing facility in Guadalajara, Mexico. The company has invested nearabout $40 million for leasing 265,000 square foot of space in the Guadalajara Technology Park for this purpose.
The Guadalajara facility was constructed primarily as a substitute for the facility located in Juarez, Mexico, which was shut down earlier in 2014 for failure to secure sufficient business.
Share Repurchase Program
During the quarter, the company announced that its board has approved a new share repurchase program worth $30 million for fiscal 2015.
Balance Sheet & Cash Flow
Plexus exited the fourth quarter of fiscal 2014 with cash & cash equivalents worth $346.6 million compared with $330.3 million in the prior quarter.
Cash flow from operations was $32.1 million compared with $38 million in the prior quarter. Free cash flow was $23.8 million versus $10 million in the third quarter.
During fiscal fourth quarter, Plexus purchased $7.7 million of its shares at an average price of $40.96 per share, which completed the $30 million stock repurchase program authorized by the board of directors on Aug 19, 2013.
Outlook
For the first quarter of fiscal 2015, revenues are projected in the range of $630 to $660 million. The Zacks Consensus Estimate for the same is pegged at $652 million.
Earnings are projected between 68 cents and 74 cents per share, excluding special items but including approximately 11 cents per share in stock-based compensation expenses. The Zacks Consensus Estimate (including stock-based compensation) is pegged at 75 cents.
Management expects margins to remain subdued in the near term on account of the huge sums spent on the ramp up of the new facility at Guadalajara.
Our Take
We believe that a sluggish demand environment will continue to hurt Plexus in the near term. Moreover, a mature electronic manufacturing services market and intense competition from the likes of Jabil Circuit (JBL) and Flextronics (FLEX) remain other headwinds for the company.
Moreover, the company is also plagued by the problem of customer concentration with the top 10% of customers accounting for about 75% of total revenue in the reported quarter.
However, we believe new program wins in the networking/communications, industrial/commercial and healthcare/life sciences sectors and global expansion will drive growth over the long term.
Moreover, the disengagement from Juniper (JNPR) 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).
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