A leading provider of electronic manufacturing services, Plexus Corp. (PLXS) is set to release its fourth quarter 2010 results on October 27, 2010, after the market close.
For the fourth quarter, management expects earnings per share (EPS) in the range of 58 cents to 63 cents, excluding restructuring charges but including 6 cents per share in stock-based compensation expense. The mid-point of the guidance represents sequential and year-over-year growth rates of 2.0% and 59.0%, respectively. The current Zacks Consensus Estimate for the fourth quarter of 2010 is 60 cents.
Plexus expects a modest sequential revenue growth in the quarter. Revenues are estimated in the range of $530 million to $555 million, up 1.1% sequentially and 38% year over year at the mid point, due to the ramp of new business. The Zacks Consensus Estimate for revenues is $546 million.
Third Quarter Highlights
Plexus’ third quarter earnings beat the Zacks Consensus Estimate on the back of production ramps of manufacturing programs, operating leverage and robust sector performance. Earnings of 59 cents per share were above the Zacks Consensus Estimate of 57 cents.
EPS leaped 156.5% from the year-ago quarter’s 23 cents. Sequentially, EPS escalated 16.0%. EPS came in line with management’s guidance of 54 cents to 60 cents.
Quarterly revenues came in at $536.4 million, an increase of 41.7% from $378.6 million in the year-ago quarter, attributable to new business wins and improving end-market demand. Sequentially, revenues were up 9%. Revenues were in line with the company’s guided range of $520 million to $545 million.
New Pipeline
Growth at Plexus has traditionally been organic and not acquisition-based. The company has been successful at winning increased share with its existing customers and signing up new accounts with an average win rate of $159 million.
During fiscal 2009, the company generated approximately $650 million from bookings, a 20% increase from 2008 level. Of Plexus’ total revenue, 94% comes from customers worth more than $5 million. We expect Plexus to drive its top line with large orders and customer wins in 2011.
Engineering agreements generate higher margins and are improving the company’s overall profitability. The company expects a 14% five-year CAGR from the engineering contracts. The company generated approximately $16 million in revenues in the third quarter from engineering bookings, of which 75% were related to the medical sector.
The company had also won 22 new manufacturing programs during the last quarter, which it believes will generate approximately $141 million in annualized revenues over the next few quarters, primarily affecting 2011 revenues.
Recommending ‘Neutral’
Plexus has exhibited incremental growth opportunities in the first nine months of 2010. Results were well above the Zacks Consensus Estimate.
We believe Plexus will remain well positioned for growth in 2011, based on new customer wins, improving end-market demand and contributions from the Coca-Cola (KO) win.
However, the weakening demand trends are reflected in its soft outlook for the fourth quarter of 2010. Revenue and earnings estimates have been lowered for the quarter. Intense competition in the electronic manufacturing services market, small market share, continued component challenges and some supply chain constraints are other negatives.
We therefore maintain our Neutral rating on the stock over the long term. Plexus is a Zacks #3 Rank stock, implying a Hold rating over the short term.
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