Plexus Corp. — Form 10-Q Summary
Business context and reporting period
Plexus provides design, supply-chain, manufacturing and aftermarket services in the Americas (AMER), Asia-Pacific (APAC), and Europe, Middle East and Africa (EMEA), serving Industrial, Healthcare/Life Sciences, and Aerospace/Defense markets. This filing covers the first quarter of fiscal 2021, ended January 2, 2021. The quarter had 13 weeks; the prior-year comparison, ended January 4, 2020, had 14 weeks, which affects comparability.
Financial performance and position
| Metric | Q1 FY2021 | Prior-year quarter |
|---|---|---|
| Net sales | $830.4 million | $852.4 million |
| Gross profit / margin | $79.3 million / 9.5% | $79.2 million / 9.3% |
| Operating income / margin | $46.9 million / 5.6% | $39.9 million / 4.7% |
| Net income | $36.2 million | $31.0 million |
| Diluted EPS | $1.23 | $1.03 |
| Operating cash flow | $6.7 million | $74.7 million |
| Capital expenditures | $15.9 million | $13.7 million |
| Free cash flow (non-GAAP) | $(9.2) million | $61.0 million |
Sales declined 2.6%, while gross profit was nearly flat and operating income rose 17.5%. The improvement in operating income reflected higher gross margin and selling and administrative expenses lower by $6.8 million, including reduced incentive compensation and travel costs and recovery of a previously reserved customer receivable. The effective tax rate was 13.1%, versus 9.5%; the prior-year rate benefited from special tax items.
At January 2, 2021, cash and cash equivalents were $356.7 million, restricted cash was $0.2 million, and total debt, finance lease and other financing obligations were $336.6 million, including $138 million of term loans. The company reported $1.76 billion of current assets and $955.5 million of current liabilities. The $350 million revolving facility was fully available at quarter-end; the company was in compliance with its debt covenants. On January 29, 2021, it repaid the $138 million term loans using revolver borrowings.
Changes versus the prior comparable period
- Revenue decreased $22.0 million. AMER sales fell 7.3%, EMEA fell 6.9%, and APAC was approximately flat.
- By market sector, Industrial revenue rose 2.7% and Healthcare/Life Sciences rose 2.2%; Aerospace/Defense fell 22.7%, reflecting weaker demand, including COVID-19-related effects.
- Gross margin increased 20 basis points, with management citing favorable customer mix and improved labor productivity. Operating margin increased 90 basis points.
- Operating cash flow fell substantially, primarily because of year-over-year working-capital movements, including accounts payable and receivables. The annualized cash cycle increased to 80 days from 71 days.
- Diluted EPS increased partly because net income rose and diluted weighted-average shares declined, including from share repurchases.
Outlook, commentary and risks
- Management said it was operating at pre-COVID production capacity, while warning that renewed virus spread could make mitigation more difficult. Supplier workforce and component availability, customer demand volatility, and logistics remain concerns.
- Management expects a fiscal 2021 effective tax rate of approximately 12%–14% and funded capital expenditures of approximately $70–$85 million, primarily for Thailand expansion, new program ramps, and equipment replacement.
- Management believes cash, operating cash flow, and available credit should cover working-capital and capital needs for at least the next 12 months. It noted that 74% of cash and cash equivalents was held outside the U.S. and that $59.3 million of U.S. federal tax payments on deemed repatriated earnings remain scheduled over the following six years.
- Key risks include COVID-19 effects, customer order changes or cancellations, component shortages and longer lead times, customer and sector concentration, program ramp and transition execution, excess or obsolete inventory, foreign exchange and interest-rate changes, and tax uncertainty. The filing provides no specific revenue or earnings guidance.
- The company repurchased 307,071 shares for approximately $22.8 million during the quarter. Remaining authorization under its repurchase program was approximately $82.6 million at quarter-end.
- Management stated that ordinary-course litigation and foreign tax audits were not expected to have a material effect. The company adopted the expected-credit-loss standard in the quarter with no material financial-statement impact.
Important facts for investors to verify
- How much of the sales decline and sector mix shift reflects the extra week in the prior-year quarter versus underlying demand?
- Whether the very low quarterly operating cash flow and negative free cash flow are temporary working-capital timing effects, and whether the longer cash cycle persists.
- How the January 29 term-loan repayment using revolver borrowings affects interest expense, available liquidity, and future maturities.
- Whether the Aerospace/Defense demand decline, component constraints, and COVID-19 effects continue, and whether new program ramps deliver expected revenue and margins.
- Whether planned capital spending, share repurchases, tax payments, and foreign-held cash remain consistent with the company’s liquidity expectations.