Plexus Corporation (PLXS) reported second-quarter 2010 earnings of 51 cents per share, beating the Zacks Consensus Estimate of 49 cents per share, but in line with management’s guidance of 44 cents to 52 cents per share. Earnings per share were a huge increase from last year’s 28 cents.

Revenue for the quarter came in at $491.0 million, an increase of 26.2% from $388.9 million in the year-ago quarter due to new business wins. Revenue was in line with the company’s guided range of $470 – $495 million.

Sector performance was robust, as the company experienced sequential revenue growth in each of its sectors, leading to better-than-expected results for the quarter. The company experienced growth in all of its market sectors, both as a consequence of improving end-market conditions and production ramps of manufacturing programs won over the past few quarters. However, management did face some supply chain constraints in the quarter.

Gross margin was 10.3% and operating margin was 4.8% in the second quarter, consistent with the company’s expectations. Selling and administrative expenses increased 21.2% year over year and were higher than management’s guidance. The company’s capacity utilization in the second quarter was approximately 84%. Utilization rates were higher in all of the operating regions, particularly in the APAC region.

Segment Results

Wireline/Networking sector performed slightly better than the company’s expectations and grew sequentially by 4%, due to improving demand for the majority of the company’s top 10 customers. For the third quarter, the company expects sequential growth to continue in the low single digit percentage range.

The Wireless Infrastructure sector was very strong in the quarter and surpassed management’s expectations. The segment grew sequentially by 42% due to strong yet lumpy demand from a new customer. However, the company expects Wireless Infrastructure revenues to decline in the high single digit percentage range in the upcoming quarter, due to few significant customers in the sector and a lumpy demand environment.

The Medical sector grew 15% sequentially, due primarily to end-market improvement. Revenue was in line with the company’s expectations. For the third quarter, management expects quarter-over-quarter growth in the high-teens percent range due to new programs ramping up.

The Industrial/Commercial sector was up approximately 26% sequentially, above the company’s expectations. The improvement was driven by a more aggressive ramp of a new customer program and improved end market demand. For the third quarter, the company expects the segment to grow in the mid-20% range sequentially, driven by strong customer performance and the early production ramp of the Coca Cola (KO) programs. The Defense/Security/Aerospace sector was about flat sequentially, below management’s expectations. The company expects segment revenue to perform better in the upcoming quarter.

The company had won 18 new manufacturing programs during the quarter, which it believes will generate approximately $137 million in annualized revenue over the next few quarters. The engineering services business continued to build a healthy backlog in the quarter with $16 million in new program wins, of which 70% are related to the medical sector.

During the quarter, Juniper Networks, Inc. (JNPR) accounted for 15% of revenue and was the only customer representing 10% or more of revenue for the quarter. The company’s top 10 customers accounted for 57% of total revenue in the fourth quarter.

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.

Balance Sheet

Plexus exited the quarter with $234.0 million in cash and investments, similar to the previous quarter. Long-term debt and capital lease obligations (including the current portion) was $139.3 million, versus $147.5 million in the previous quarter.

Plexus generated $15 million of cash from operating activities, versus $10 million in the previous quarter. Capital expenditures for the quarter were $19.0 million, resulting in a negative free cash flow of $4 million. Return on invested capital (ROIC) was 18.7%, versus 18.1% in the previous quarter and the company’s long-term target of 20%. The increase in ROIC was due to strong earnings and disciplined working capital management.


Plexus provided a robust guidance for the third quarter of fiscal 2010. Earnings per share are expected to be in the range of 54 cents – 60 cents, excluding restructuring charges but including 6 cents in stock-based compensation expense.

The company expects revenue in the range of $520 – $545 million, up 8.5% quarter over quarter at the mid point, due to the ramp of new business wins and improving end-market demand. The company expects full fiscal year 2010 organic revenue to grow over 20% year over year.

The company anticipates sequential revenue growth to continue in the fourth quarter 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.

Depreciation is expected to be in the $10.0 – $10.3 million range and SG&A to be in the range of $27 – $27.5 million in the third quarter, an increase from the second quarter of 2010.

For full year 2010, capital spending is expected to be in the range of $80 – $90 million, an increase from the previous estimate of $65 – $75 million due to increased investments in its global manufacturing footprint, with additional capacity to be available later in fiscal 2011.
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