Plexus Corporation (PLXS) reported first-quarter 2010 earnings of 44 cents per share, excluding restructuring charges and tax impact but including stock based compensation. The result beat the Zacks Consensus Estimate of 34 cents, and was above management’s guidance of 31 to 36 cents. Earnings per share were even with last year’s 44 cents and benefited from a lower tax rate in the quarter.

Revenue for the quarter came in at $430.4 million, a decrease of 5.6% from $456.1 million in the year-ago quarter. While revenue was at the high end of the company’s guided range of $405 – $430 million, the company still witnessed demand volatility in the quarter. Management expects the choppy demand environment to continue in the near term, as supply chain constraints continue.

Sector performance was mixed, as the Wireline/Networking sector performed better than the company’s expectations and grew sequentially by 20%. For the second quarter, the company expects low single digit percentage growth in the Wireline/Networking sector. This growth was offset by the Wireless Infrastructure sector, which performed below the company’s expectations and fell sequentially by 4%. However, the company expects stronger results from the segment in the upcoming quarter as revenue growth is likely to exceed 30% quarter over quarter.

The Medical sector returned to growth and grew 15% sequentially, due primarily to end market improvement. Revenue was in line with the company’s expectations. Management expects 20% quarter-over-quarter growth in the Medical Segment in the second quarter.

The Industrial/Commercial sector was relatively flat sequentially, but was an improvement over the modest sequential decline in revenues that the company had anticipated. The improvement was driven by a more aggressive ramp of a newer customer program. For the second quarter, the company expects the segment to grow 20% sequentially. The Defense/Security/Aerospace sector was down sequentially, but in line with management’s expectations. The company expects segment revenue to grow in the mid-teens due to new program ramp up.

The company had won 16 new manufacturing programs during the quarter, which it believes will generate approximately $108 million in annualized revenue over the next few quarters. During the quarter, Juniper Networks, Inc. (JNPR) accounted for 17% of revenue and was the only customer representing 10% or more of revenue for the quarter. The company’s top 10 customers accounted for 62% of total revenue in the fourth quarter. Plexus’ partnership with The Coca-Cola Company (KO) to manufacture Coca-Cola Freestyle, a new proprietary fountain dispenser, will deliver incremental revenues of approximately $200 million in 2010.

Gross margin was 9.6% in the first quarter, consistent with the company’s expectations. Selling and administrative expenses were higher in the quarter but was in line with management’s expectation. The company’s capacity utilization in the first quarter was approximately 76%. Utilization rates in Asia were higher than the corporate average, an indication that further capacity expansion in Asia will likely be required to execute the company’s longer term growth strategies.

Balance Sheet

Plexus exited the quarter with $233.9 million in cash and investments versus $258.4 million in the previous quarter. Long-term debt and capital lease obligations (including the current portion) was $147.5 million, versus $258.4 million in the previous quarter. Plexus used $10 million of cash from operating activities, versus $61 million generated in the previous quarter. Capital expenditures for the quarter were $12.0 million, resulting in a negative free cash flow of $22 million. Return on invested capital (ROIC) was 18.1%, versus 13.2% in the previous quarter. The increase in ROIC was due to strong earnings and disciplined working capital management.

Guidance

Plexus provided a robust guidance for the second quarter of fiscal 2010. The company expects revenue in the range of $470 – $495 million, up 12% quarter over quarter at the mid point, due to the ramp of new business wins and improving end market demand. The company anticipates sequential revenue growth to continue in the third and fourth quarters of fiscal 2010. With growing revenues, the company plans to deliver its 20-10-5 financial model (20% ROIC target, 10% gross margin target and 5% operating margin target) in fiscal 2010.

Earnings per share are expected to be in the range of 44 cents – 52 cents, excluding restructuring charges but including 7 cents per share in stock-based compensation expense. Depreciation is expected to be in the $9.5 – $9.8 million range. The company expects SG&A to be in the range of $26 – $26.5 million in the second quarter, an increase from the first quarter of 2010.

For the full year 2010, capital spending is expected to be in the range of $65 – $75 million, an increase of $5 million from the previous estimate. The tax rate is expected to be in the low single digits for the full year 2010.

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