Plexus Corp. — Q2 FY2021 Form 10-Q
Reporting period: Second quarter and first six months of fiscal 2021 ended April 3, 2021. Quarter comparisons are against the three months ended April 4, 2020; six-month comparisons are against the six months ended April 4, 2020. Plexus provides electronics manufacturing services across AMER, APAC and EMEA, serving Industrial, Healthcare/Life Sciences and Aerospace/Defense markets.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Net sales | $880.9m | $767.4m | $1,711.2m | $1,619.8m |
| Gross profit / margin | $91.0m / 10.3% | $61.4m / 8.0% | $170.3m / 10.0% | $140.6m / 8.7% |
| Operating income / margin | $50.7m / 5.8% | $17.2m / 2.2% | $97.6m / 5.7% | $57.1m / 3.5% |
| Net income | $41.8m | $12.9m | $78.0m | $43.9m |
| Diluted EPS | $1.42 | $0.43 | $2.65 | $1.46 |
- Quarterly sales rose 14.8%; six-month sales increased 5.6%. Six-month net income rose 77.7% and diluted EPS increased 81.5%.
- Management attributed stronger margins primarily to improved labor productivity and lower travel and healthcare costs. Lower bad-debt expense and restructuring charges also supported operating income; higher incentive compensation partly offset the benefit.
- By sector, Q2 Industrial sales grew 20.1% and Healthcare/Life Sciences grew 29.1%; Aerospace/Defense declined 21.1%, mainly due to weaker commercial aerospace demand. APAC sales increased 18.3%, AMER 9.1%, and EMEA 12.6%.
- Operating cash flow was $88.9m for the six months, versus $45.4m a year earlier. Capital expenditures were $23.1m; management-defined free cash flow was $65.7m, compared with $14.7m.
Balance sheet, debt and liquidity
- At April 3, 2021, cash and cash equivalents were $294.4m and restricted cash was $0.1m, compared with combined cash and restricted cash of $387.9m at October 3, 2020.
- Total debt, finance lease and other financing obligations were $239.0m, down from $334.8m at fiscal year-end. This included $38.0m drawn on the $350m revolving facility; $312m remained available. Plexus repaid its $138m COVID-related term loan in January 2021, using revolver borrowings.
- Current assets were $1,727.3m and current liabilities $919.3m. Inventory was $771.6m, up from $763.5m at year-end; customer deposits were $175.1m.
- Operating, investing and financing activities produced cash flows of +$88.9m, -$23.1m and -$160.5m, respectively. Financing outflows included debt repayments and $51.9m of stock repurchases.
- Management said available cash, operating cash flow and the revolver should meet working-capital and capital needs for at least the next 12 months. About 88% of cash and cash equivalents was held outside the U.S.
Changes, outlook and risks
- Sales and profitability improved substantially year over year, with gross margin up 230 basis points in Q2 and operating margin up 360 basis points. Growth was led by Industrial and Healthcare/Life Sciences; Aerospace/Defense remained pressured.
- Management estimated a FY2021 effective tax rate of approximately 12%–14% and funded capital expenditures of approximately $70m–$85m. The filing does not provide a specific revenue or earnings forecast.
- COVID-19 continued to create uncertainty. Plexus reported increased labor shortages from quarantines, particularly in Malaysia, and component procurement delays; further outbreaks could make operational mitigation more difficult.
- Other cited risks include customer order volatility or cancellations, supply constraints, customer and sector concentration, program ramp and transition costs, excess or obsolete inventory, foreign-exchange and tax matters, and cybersecurity. Commercial aerospace demand was notably weak.
- Q2 restructuring charges were $2.0m, primarily severance related to workforce reductions, mainly in EMEA; the remaining $1.6m accrual was expected to be used by fiscal year-end. The prior-year quarter included $6.0m of restructuring and impairment charges, including Boulder Design Center impairments.
- A $0.9m tax benefit arose from releasing a full valuation allowance for an EMEA jurisdiction following an audit settlement. Management reported compliance with debt covenants; ordinary-course litigation was not expected to have a material effect.
Important facts for investors to verify
- Whether COVID-related labor shortages and component constraints affect production, delivery performance, costs or customer demand.
- Whether Healthcare/Life Sciences and new program ramps can sustain growth, and how quickly commercial aerospace demand recovers.
- Whether margin improvements from productivity and lower pandemic-related costs persist as volumes and costs change.
- How the $70m–$85m capital spending plan, share repurchases and revolver usage affect cash, debt and liquidity; also monitor reliance on receivable-sale programs, which are uncommitted.
- Whether the estimated 12%–14% tax rate holds, including the effects of geographic earnings mix, tax audits and valuation allowances.