A month has gone by since the last earnings report for Plexus (PLXS). Shares have added about 10.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Plexus due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Plexus’ Q1 Earnings Drives On Higher Healthcare Revenues
Plexus reported first-quarter fiscal 2019 adjusted earnings of 91 cents per share, which beat the Zacks Consensus Estimate by a penny. The figure rose 21.3% year over year.
Revenues of $766 million missed the consensus mark of $769 million but increased 13.1% on a year-over-year basis. Strong performance of Healthcare/Life Sciences segment across all the end-markets drove top-line growth.
Healthcare/Life Sciences revenues (39.3% of revenues) were up nearly 27% from the year-ago quarter to $301 million.
Industrial/Commercial revenues (28.6% of revenues) were up 5.8% year over year to $219 million.
Defense/Security/Aerospace segment revenues (16.1%) grew 23% on a year-over-year basis to $123 million.
Revenues from the Communications sector (16.1%) declined 7.5% year over year to $123 million.
Region-wise, revenues from the Americas (AMER) increased 18.4% from the year-ago quarter to $354 million. Revenues from the Asia Pacific region (APAC) rose 9.2% to $378 million. Revenues from Europe, the Middle East and Africa (EMEA) totaled $73 million, up 14.1% year over year.
Plexus won 33 manufacturing contracts during the quarter worth $230 million in annualized revenues. Manufacturing wins contributed $920 million in annualized revenues in the trailing four quarters.
Plexus exited the quarter with a funnel of $2.6 billion in qualified manufacturing opportunities. The demand in the Healthcare/Life Sciences sector was robust with a funnel of qualified manufacturing opportunities at $67 million. Moreover, Industrial/Commercial team had robust wins of $76 million.
Plexus won awards worth $45 million and $42 million in the Communications and Aerospace & Defense sector, respectively. Notably, the top 10 customers of the company together accounted for 59% of net revenues, which stayed flat sequentially.
Adjusted gross margin increased 10 basis points (bps) on a year-over-year basis to 9.5% in the first quarter.
Reported selling and administrative expenses (4.6% of revenues) increased 10.6% from the year-ago quarter to approximately $35.4 million.
Plexus reported adjusted operating income of $36.9 million, up 16.8% year over year. Adjusted operating margin increased 10 bps on a year-over-year basis to 4.8%.
Return on Invested Capital (ROIC) in the first quarter of fiscal 2019 was 14.6%
Balance Sheet & Cash Flow
Plexus exited the first quarter with cash & cash equivalents worth $188.8 million compared with $297.3 million in fourth-quarter fiscal 2018. The decline was driven by additional working capital investments, capital expenditures and share repurchase.
In the fiscal first quarter, the company used cash of $33.3 million for operations and $24.9 million for capital expenditures, resulting in negative free cash flow of $58.2 million. In fourth-quarter fiscal 2018, the company had positive free cash flow of $14.7 million.
At the end of the first quarter, it had long-term debt of $187.6 million, significantly up from $183 million in the fourth quarter. Share repurchases for the quarter amounted to $50.1 million.
For the second quarter of fiscal 2019, revenues are projected in the range of $760 million and $800 million. Operating margin is expected to be in the band of 4.3% and 4.7% for second-quarter fiscal 2019.
The company expects gross margin to decline 30 bps, sequentially, driven by the increase in seasonal compensation costs.
Plexus expects its robust Healthcare & Life Sciences sector to decline low single digit in the second-quarter, due to seasonal softness with a large customer. Moreover, Industrial/ Commercial sector is expected to grow mid-single-digit, backed by program wins. Communication sector is expected to remain an overhang with a high single digit revenue decline in the second-quarter.
Plexus expects non-operating expenses to increase $1.6 million sequentially in the second quarter of fiscal 2019. This increase in expenses will likely be due to additional interest expense from borrowings and capital lease starting on the company’s new facility in Guadalajara, Mexico. The company also expects operating margin to slightly decline due to seasonal cost pressure.
The company expects GAAP earnings in the range of 80 cents and 90 cents for second quarter of fiscal 2019 on the back of program wins. The new wins are expected to offset weakness in the semiconductor capital equipment market.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.06% due to these changes.
Currently, Plexus has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Plexus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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