Plexus Announces Fiscal Fourth Quarter and Fiscal Year 2017 Financial Results

DATE: Oct 25, 2017

  • Fiscal fourth quarter 2017 record revenue of $670 million
  • GAAP diluted EPS of $0.84
  • Initiates fiscal first quarter 2018 revenue guidance of $665 to $705 million with GAAP diluted EPS of $0.75 to $0.85

NEENAH, Wis., Oct. 25, 2017 (GLOBE NEWSWIRE) -- Plexus (NASDAQ:PLXS) today announced financial results for its fiscal fourth quarter ended September 30, 2017, and guidance for its fiscal first quarter ending December 30, 2017.

    Three Months Ended
    Sept 30, 2017   Sept 30, 2017   Dec 30, 2017
    Q4F17 Results   Q4F17 Guidance   Q1F18 Guidance
Summary GAAP Items          
Revenue (in millions) $670     $660 to $700   $665 to $705
Operating margin   5.1%     4.7% to 5.1%   4.6% to 5.0%
Diluted EPS (1) $0.84     $0.77 to $0.87   $0.75 to $0.85
             
Summary Non-GAAP Items (2)          
Return on invested capital (ROIC)   16.2%          
Economic Return   5.7%          
             
(1Includes stock-based compensation expense of $0.14 for Q4F17 results and $0.11 for Q1F18 guidance.
(2Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures discussed in this release, such as ROIC and Economic Return, and a reconciliation of these measures to GAAP.

Fiscal Fourth Quarter 2017 Information

  • Won 34 manufacturing programs during the quarter representing approximately $172 million in annualized revenue when fully ramped into production
  • Trailing four quarter wins total approximately $811 million in annualized revenue when fully ramped into production
  • Purchased $10.3 million of our shares at an average price of $51.98 per share

Fiscal Year 2017 Information

  • Revenue: $2.5 billion
  • GAAP diluted EPS: $3.24, up 45% from fiscal 2016
  • ROIC: 16.2%, delivering an economic return of 570 basis points above our weighted average cost of capital
  • Purchased $34.1 million of our shares at an average price of $52.08 per share

Todd Kelsey, President and CEO, commented, “I am pleased with our fiscal 2017 operating performance.  We finished the full year with record GAAP operating profit of $130 million, achieving operating margin of 5.1%.  Further, we finished the fiscal fourth quarter with record revenue of $670 million, representing an 8% sequential increase from the fiscal third quarter.  Strong operating performance, coupled with the increase in revenue, resulted in fiscal fourth quarter GAAP diluted EPS of $0.84.  The fiscal fourth quarter was the sixth consecutive quarter in which we met or exceeded our 4.7% to 5.0% operating margin target range.”

Patrick Jermain, Senior Vice President and CFO, commented, “The increase in fiscal fourth quarter revenue and improvements in our inventory management contributed to an 8 day sequential improvement in our fiscal fourth quarter cash cycle days.  In fiscal 2017, we delivered return on invested capital of 16.2%.  This equates to an economic return of 570 basis points above our weighted average cost of capital of 10.5%, our best annual result in more than 10 years.  Further, we increased our annual free cash flow by approximately 37% in fiscal 2017, delivering approximately $133 million.”

Mr. Kelsey concluded, “Looking ahead to fiscal 2018, we anticipate leveraging our recent strong wins momentum and robust funnel of qualified opportunities to achieve meaningful revenue growth.  In our fiscal first quarter of 2018, strength in our Industrial/Commercial and Communications market sectors are expected to offset modest weakening within our Aerospace/Defense market sector.  As a result, we are guiding fiscal first quarter 2018 revenue in the range of $665 million to $705 million.  At this level of revenue, we expect GAAP diluted EPS in the range of $0.75 to $0.85 as we continue to invest in new program ramps.”

Quarterly & Annual Comparison Three Months Ended   Twelve Months Ended
  Sept 30, 2017   Jul 1, 2017   Oct 1, 2016   Sept 30, 2017   Oct 1, 2016
(in thousands, except EPS) Q4F17   Q3F17   Q4F16   F17   F16
Revenue $ 669,852     $ 618,832     $ 653,064     $ 2,528,052     $ 2,556,004  
Gross profit 66,514     61,185     61,530     255,855     227,359  
Operating income 33,965     29,469     23,651     129,908     99,439  
Net income 29,009     25,579     19,093     112,062     76,427  
Diluted EPS $ 0.84     $ 0.74     $ 0.56     $ 3.24     $ 2.24  
Adjusted net income* 29,009     25,579     28,261     112,062     90,824  
Adjusted diluted EPS* $ 0.84     $ 0.74     $ 0.82     $ 3.24     $ 2.66  
                   
Gross margin 9.9 %   9.9 %   9.4 %   10.1 %   8.9 %
Adjusted gross margin** 9.9 %   9.9 %   9.9 %   10.1 %   9.0 %
Operating margin 5.1 %   4.8 %   3.6 %   5.1 %   3.9 %
Adjusted operating margin* 5.1 %   4.8 %   5.1 %   5.1 %   4.5 %
                                       
ROIC* 16.2 %   16.1 %   13.8 %   16.2 %   13.8 %
Economic Return* 5.7 %   5.6 %   2.8 %   5.7 %   2.8 %
                   
*Refer to Non-GAAP Supplemental Information Tables 1 and 2 for a reconciliation to GAAP measures.
**A Non-GAAP measure that excludes $2.9 million of primarily inventory losses sustained from a typhoon that impacted the Company's manufacturing facilities in Xiamen, China in Q4F16 that were recorded in cost of sales in the accompanying Condensed Consolidated Statements of Operations.

Business Segment and Market Sector Revenue
The Company measures operational performance and allocates resources on a geographic segment basis.  Plexus also reports revenue based on the market sector breakout set forth in the table below, which reflects the Company’s global market sector focused business development strategy.  Top 10 customers comprised 55% of revenue during the fiscal fourth quarter, up one percentage point from the fiscal third quarter of 2017, and 56% of revenue during fiscal year 2017, down three percentage points from the prior fiscal year.

Business Segments ($ in millions) Three Months Ended   Twelve Months Ended
  Sept 30, 2017   Oct 1, 2016   Sept 30, 2017   Oct 1, 2016
Americas $ 314     $ 334     $ 1,166     $ 1,329  
Asia-Pacific 334     299     1,279     1,162  
Europe, Middle East, and Africa 55     44     193     170  
Elimination of inter-segment sales (33)     (24)     (110)     (105)  
Total Revenue $ 670     $ 653     $ 2,528     $ 2,556  
                               


Market Sectors ($ in millions) Three Months Ended   Twelve Months Ended
  Sept 30, 2017
Q4F17
  Jul 1, 2017
Q3F17
  Oct 1, 2016
Q4F16
  Sept 30, 2017
F17
  Oct 1, 2016
F16
Healthcare/Life Sciences $ 233   35 %   $ 210   34 %   $ 192   29 %   $ 859   34 %   $ 780   31 %
Industrial/Commercial 189   28 %   201   32 %   231   35 %   788   31 %   774   30 %
Communications 140   21 %   99   16 %   128   20 %   478   19 %   597   23 %
Aerospace/Defense* 108   16 %   109   18 %   102   16 %   403   16 %   405   16 %
Total Revenue $ 670       $ 619       $ 653       $ 2,528       $ 2,556    
                                                 

*Formerly known as Defense/Security/Aerospace

Non-GAAP Supplemental Information
Plexus provides non-GAAP supplemental information, such as ROIC, Economic Return, and free cash flow, because such measures are used for internal management goals and decision making, and because they provide management and investors additional insight into financial performance.  In addition, management uses these and other non-GAAP measures, such as adjusted net income, adjusted gross margin and adjusted operating margin, to provide a better understanding of core performance for purposes of period-to-period comparisons.  Plexus believes that these measures are also useful to investors because they provide further insight by eliminating the effect of items that are not reflective of continuing operations.  For a full reconciliation of non-GAAP measures to comparable GAAP measures, please refer to Non-GAAP Supplemental Information and the attached Non-GAAP Supplemental Information Tables.

ROIC and Economic Return
ROIC for each of fiscal 2017 and the fiscal fourth quarter was 16.2%.  The Company defines ROIC as tax-effected annualized adjusted operating income divided by average invested capital over a five-quarter period for the fourth quarter.  Invested capital is defined as equity plus debt, less cash and cash equivalents.  The Company’s weighted average cost of capital for fiscal 2017 was 10.5%.  ROIC for each of fiscal 2017 and the fiscal fourth quarter less the Company’s weighted average cost of capital resulted in an economic return of 5.7%.

Free Cash Flow Calculation
The Company defines free cash flow as cash flows provided by operations less capital expenditures.  For the three months ended September 30, 2017, cash flows provided by operations was $49.8 million, less capital expenditures of $14.1 million, resulting in free cash flow of $35.7 million.  For the twelve months ended September 30, 2017, cash flows provided by operations was $171.7 million, less capital expenditures of $38.5 million, resulting in free cash flow of $133.2 million.

Cash Cycle Days Three Months Ended  
  Sept 30, 2017
Q4F17
    Jul 1, 2017
Q3F17
    Oct 1, 2016
Q4F16
 
Days in Accounts Receivable 50     47     58  
Days in Inventory 99     107     87  
Days in Accounts Payable (63)     (65)     (61)  
Days in Cash Deposits (16)     (13)     (13)  
Annualized Cash Cycle* 70     76     71  
                 
*We calculate cash cycle as the sum of days in accounts receivable and days in inventory, less days in accounts payable and days in cash deposits.

Conference Call and Webcast Information

What: Plexus Fiscal Q4 2017 Earnings Conference Call and Webcast
When: Thursday, October 26, 2017 at 8:30 a.m. Eastern Time
Where:  Participants are encouraged to join the live webcast at the investor relations section of the Plexus website, www.plexus.com or directly at: http://edge.media-server.com/m6/p/mu7t6rf7 
  Conference call at +1.800.708.4539 with passcode: 45706549
Replay: The webcast will be archived on the Plexus website and available via telephone replay at +1.888.843.7419 or +1.630.652.3042 with passcode: 45706549

Investor and Media Contact
Susan Hanson
+1.920.751.5491
susan.hanson@plexus.com 

About Plexus – The Product Realization Company
Since 1979, Plexus has been partnering with companies to create the products that build a better world.  We are a team of over 16,000, providing global Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing, and Aftermarket Services.  Plexus is an industry leader that specializes in serving customers with complex products used in demanding regulatory environments.  With a culture built around innovation and customer service, Plexus’ teams create customized end-to-end solutions to assure the realization of the most intricate products.  For more information about Plexus, visit our website, plexus.com.

Safe Harbor and Fair Disclosure Statement
The statements contained in this press release that are guidance or which are not historical facts (such as statements in the future tense and statements including believe, expect, intend, plan, anticipate, goal, target and similar terms and concepts), including all discussions of periods which are not yet completed, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include, but are not limited to: the risk of customer delays, changes, cancellations or forecast inaccuracies in both ongoing and new programs; the lack of visibility of future orders, particularly in view of changing economic conditions; the economic performance of the industries, sectors and customers we serve; the effects of the volume of revenue from certain sectors or programs on our margins in particular periods; our ability to secure new customers, maintain our current customer base and deliver product on a timely basis; the particular risks relative to new or recent customers, programs or services, which risks include customer and other delays, start-up costs, potential inability to execute, the establishment of appropriate terms of agreements, and the lack of a track record of order volume and timing; the risks of concentration of work for certain customers; the effect of start-up costs of new programs and facilities; possible unexpected costs and operating disruption in transitioning programs, including transitions between Company facilities; the risk that new program wins and/or customer demand may not result in the expected revenue or profitability; the fact that customer orders may not lead to long-term relationships; our ability to manage successfully and execute a complex business model characterized by high product mix, low volumes and demanding quality, regulatory, and other requirements; the ability to realize anticipated savings from restructuring or similar actions, as well as the adequacy of related charges as compared to actual expenses; increasing regulatory and compliance requirements; risks related to information technology systems and data security; the potential effects of regional results on our taxes and ability to use deferred tax assets and net operating losses; the effects of shortages and delays in obtaining components as a result of economic cycles or natural disasters; the risks associated with excess and obsolete inventory, including the risk that inventory purchased on behalf of our customers may not be consumed or otherwise paid for by the customer, resulting in an inventory write-off; the weakness of areas of the global economy; the effect of changes in the pricing and margins of products; raw materials and component cost fluctuations; the potential effect of fluctuations in the value of the currencies in which we transact business; the effects of changes in economic conditions, political conditions, trade protection measures, and tax matters in the United States and in the other countries in which we do business (including as a result of the United Kingdom’s pending exit from the European Union); the potential effect of other world or local events or other events outside our control (such as changes in energy prices, terrorism and weather events); the impact of increased competition; changes in financial accounting standards; and other risks detailed herein and in our other Securities and Exchange Commission filings (particularly in "Risk Factors" in our fiscal 2016 Form 10-K).

 
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
           
  Three Months Ended   Twelve Months Ended
  Sept 30,   Oct 1,   Sept 30,   Oct 1,
  2017   2016
  2017   2016
Net sales $ 669,852     $ 653,064
    $ 2,528,052     $ 2,556,004
 
Cost of sales 603,338     591,534     2,272,197     2,328,645  
Gross profit 66,514     61,530     255,855     227,359  
Selling and administrative expenses 32,549     36,074     125,947     120,886  
Restructuring and other charges     1,805         7,034  
Operating income 33,965     23,651     129,908     99,439  
Other income (expense):              
Interest expense (3,748 )   (3,790 )   (13,578 )   (14,635 )
Interest income 1,487     1,161     5,042     4,242  
Miscellaneous (697 )   799     451     (1,652
)
Income before income taxes 31,007     21,821     121,823     87,394  
Income tax expense 1,998     2,728     9,761     10,967  
Net income $ 29,009     $ 19,093     $ 112,062     $ 76,427  
Earnings per share:              
Basic $ 0.86     $ 0.57     $ 3.33     $ 2.29  
Diluted $ 0.84     $ 0.56     $ 3.24     $ 2.24  
Weighted average shares outstanding:              
Basic 33,541     33,455     33,612     33,374  
Diluted 34,482     34,335     34,553     34,098  


PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
       
  Sept 30,   Oct 1,
  2017   2016
ASSETS      
Current assets:      
Cash and cash equivalents $ 568,860     $ 432,964  
Restricted cash 394      
Accounts receivable 365,513     416,888  
Inventories 654,642     564,131  
Prepaid expenses and other 28,046     19,364  
Total current assets 1,617,455     1,433,347  
Property, plant and equipment, net 314,665     291,225  
Deferred income taxes 5,292     4,834  
Other 38,770     36,413  
Total non-current assets 358,727     332,472  
Total assets $ 1,976,182     $ 1,765,819  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt and capital lease obligations $ 286,934     $ 78,507  
Accounts payable 413,999     397,200  
Customer deposits 107,837     84,637  
Accrued salaries and wages 49,376     41,806  
Other accrued liabilities 49,445     48,286  
Total current liabilities 907,591     650,436  
Long-term debt and capital lease obligations, net of current portion 26,173     184,002  
Other liabilities 16,479     14,584  
Total non-current liabilities 42,652     198,586  
Total liabilities 950,243     849,022  
Shareholders’ equity:      
Common stock, $.01 par value, 200,000 shares authorized,      
51,934 and 51,272 shares issued, respectively,      
and 33,464 and 33,457 shares outstanding, respectively 519     513  
Additional paid-in-capital 555,297     530,647  
Common stock held in treasury, at cost, 18,470 and 17,815, respectively (574,104 )   (539,968 )
Retained earnings 1,049,206     937,144  
Accumulated other comprehensive loss (4,979 )   (11,539 )
Total shareholders’ equity 1,025,939     916,797  
Total liabilities and shareholders’ equity $ 1,976,182     $ 1,765,819  
       


PLEXUS CORP. AND SUBSIDIARIES  
NON-GAAP SUPPLEMENTAL INFORMATION Table 1  
(in thousands, except per share data)  
(unaudited)  
                     
  Three Months Ended   Twelve Months Ended  
  Sept 30,   Jul 1,   Oct 1,   Sept 30,   Oct 1,  
  2017   2017   2016   2017   2016  
Operating income, as reported $ 33,965     $ 29,469     $ 23,651     $ 129,908     $ 99,439    
Operating margin, as reported 5.1 %   4.8 %   3.6 %   5.1 %   3.9 %  
                                         
Non-GAAP adjustments:                                        
Typhoon-related losses (1)         2,871         2,871    
Accelerated stock-based compensation expense (2)         5,210         5,210    
Restructuring and other charges*         1,805         7,034    
Adjusted operating income $ 33,965     $ 29,469     $ 33,537     $ 129,908     $ 114,554    
Adjusted operating margin 5.1 %   4.8 %   5.1 %   5.1 %   4.5 %  
                     
Net income $ 29,009     $ 25,579     $ 19,093     $ 112,062     $ 76,427    
                     
Non-GAAP adjustments:                    
Typhoon-related losses (1)         2,871         2,871    
Related tax impact         (718 )       (718 )  
Accelerated stock-based compensation expense (2)         5,210         5,210    
Restructuring and other charges*         1,805         7,034    
Adjusted net income $ 29,009     $ 25,579     $ 28,261     $ 112,062     $ 90,824    
                     
Diluted earnings per share $ 0.84     $ 0.74     $ 0.56     $ 3.24     $ 2.24    
                     
Non-GAAP adjustments:                    
Typhoon-related losses (1)         0.08         0.08    
Related tax impact         (0.02 )       (0.02 )  
Accelerated stock-based compensation expense (2)         0.15         0.15    
Restructuring and other charges*         0.05         0.21    
Adjusted diluted earnings per share $ 0.84     $ 0.74     $ 0.82     $ 3.24     $ 2.66    
                     
*Summary of restructuring and other charges                    
Employee termination and severance costs $     $     $ 565     $     $ 5,255    
Other exit costs         460         999    
Loss on sale leaseback of building         780         780    
Total restructuring and other charges $     $     $ 1,805     $     $ 7,034    
                     
(1) During Q4F16 $2.9 million of charges were recorded in cost of sales in the accompanying Condensed Consolidated Statements of Operations; these charges resulted primarily from inventory losses sustained from a typhoon that impacted the Company's manufacturing facilities in Xiamen, China.
 
(2) During Q4F16 $5.2 million of accelerated stock-based compensation expense was recorded in selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations pursuant to the retirement agreement with the Company's former Chief Executive Officer.
 


PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 2
 (in thousands)
(unaudited)
           
ROIC and Economic Return Calculations Twelve Months Ended   Nine Months Ended   Twelve Months Ended
  Sept 30,   Jul 1,   Oct 1,
  2017   2017   2016
Operating income   $ 129,908       $ 95,943       $ 99,439  
Typhoon-related losses +     +     + 2,871  
Accelerated stock-based compensation expense +     +     + 5,210  
Restructuring and other charges +     +     + 7,034  
Adjusted operating income   $ 129,908       $ 95,943       $ 114,554  
        ÷ 3        
          $ 31,981        
        x 4        
Adjusted annualized operating income   $ 129,908       $ 127,924       $ 114,554  
Tax rate x 8 %   x 8 %   x 11 %
Tax impact   10,393       10,234       12,601  
Adjusted operating income (tax effected)   $ 119,515       $ 117,690       $ 101,953  
                 
Average invested capital ÷ $ 738,266     ÷ $ 730,286     ÷ $ 739,986  
                 
ROIC   16.2 %     16.1 %     13.8 %
Weighted average cost of capital - 10.5 %   - 10.5 %   - 11.0 %
Economic return   5.7 %     5.6 %     2.8 %
                       


  Three Months Ended
Average Invested Capital Sept 30,   Jul 1,   Apr 1,   Dec 31,   Oct 1,
Calculations 2017     2017     2017     2016     2016  
Equity $ 1,025,939     $ 991,306     $ 961,438     $ 927,542     $ 916,797  
Plus:                  
Debt - current 286,934     267,297     92,623     78,879     78,507  
Debt - long-term 26,173     26,138     185,638     184,136     184,002  
Less:                  
Cash and cash equivalents (568,860 )   (519,172 )   (524,520 )   (496,505 )   (432,964 )
  $ 770,186     $ 765,569     $ 715,179     $ 694,052     $ 746,342  
                                       


  Three Months Ended
Average Invested Capital Jul 2,   Apr 2,   Jan 2,   Oct 3,
Calculations 2016     2016     2016     2015  
Equity $ 895,175     $ 871,111     $ 850,794     $ 842,272  
Plus:              
Debt - current 78,279     2,300     2,864     3,513  
Debt - long-term 184,479     259,565     259,289     259,257  
Less:              
Cash and cash equivalents (433,679 )   (409,796 )   (354,728 )   (357,106 )
  $ 724,254     $ 723,180     $ 758,219     $ 747,936  
                               

 

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