Plexus Corporation (PLXS) is scheduled to release its first quarter of fiscal 2010 earnings ended January 2 after the market closes on January 20. Plexus Corp. is currently rated as a Zacks Rank #3 (Neutral) stock, indicating that it should perform in line with the overall market over the next 1−3 months.
 
Plexus had provided an encouraging guidance for the reportable quarter. The company expects modest revenue growth in the range of $405 – $430 million, up 6% quarter over quarter at the mid point due to the ramp-up of new business wins and improving customer demand.
 
The company expects earnings per share in the range of 31 cents – 36 cents, up 12% at the mid point excluding restructuring charges but including 5 cents per share in stock-based compensation expense.
 
The Zacks Consensus Estimate for the quarter of 2010 currently stands at 34 cents, down 22.7% from the year-ago period with a potential negative surprise of 2.94%. This implies that there may be a downward price movement.
 
Management expects gross margin to be within 9.5% to 9.8%. Depreciation is expected to be approximately in the $9.0 – $9.3 million range. Plexus expects SG&A expenses to be in the range of $24.5 – $25.0 million. The company expects to witness a modest increase in headcount and other spending in the second quarter of 2010. For the full year 2010, capital spending is expected to be in the range of $60 – $70 million.
 
By sector, Wireline/Networking is expected to be strong in the quarter and to grow in the mid-teens percentage range. Wireless Infrastructure is expected to be up in the mid-single digits percentage range due to the continuing new program ramp-up. Management expects Medical sector to deliver a strong quarter and grow in the mid-teens percentage range. However, Defense/Security/Aerospace and Industrial/Commercial sectors are expected to decline modestly in the quarter.
 
Plexus’ earnings performance has been good, though its long-term earnings growth outlook lags that of many of its peers. While both revenue and earnings have declined year over year in 2009, the company expects growth to revive in the second half of 2010. Moreover, a strong cash position and impressive cash flow are other positives for the stock.
 
In the near term, the margins are expected to see pressure due to new program wins and increased spending. We expect the carry-over effect of the bleak economic conditions to keep hampering the company’s results in the next few quarters.
 
We believe that Plexus’ partnership with The Coca-Cola Company to manufacture Coca-Cola Freestyle, a new proprietary fountain dispenser, will deliver incremental revenues of approximately $200 million in 2010. Moreover, an increase of bookings by 20% in fiscal 2009 will help drive growth.
 
These factors lead us to maintain our long-term Neutral rating on the stock.
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