Plexus Corp. 10-Q Summary: Period Ended April 4, 2009
Business Context and Reporting Period
Plexus Corp. is an Electronic Manufacturing Services (EMS) provider serving wireline/networking, wireless infrastructure, medical, industrial/commercial, and defense/security/aerospace sectors. This report covers the three and six-month periods ended April 4, 2009. The fiscal year 2009 includes an additional week (371 days total), added to the first quarter, which impacts year-over-day comparisons.
Key Financial Metrics
| Metric | 3 Months Ended Apr 4, 2009 |
3 Months Ended Mar 29, 2008 |
6 Months Ended Apr 4, 2009 |
6 Months Ended Mar 29, 2008 |
|---|---|---|---|---|
| Net Sales | $388.9 million | $451.0 million | $845.0 million | $909.3 million |
| Gross Profit | $35.8 million | $51.6 million | $82.3 million | $107.1 million |
| Gross Margin | 9.2% | 11.4% | 9.8% | 11.8% |
| Operating Income | $5.4 million | $27.6 million | $26.2 million | $59.5 million |
| Net Income | $5.0 million | $22.1 million | $22.1 million | $49.4 million |
| Diluted EPS | $0.13 | $0.48 | $0.56 | $1.06 |
| Cash & Equivalents | $201.3 million (as of Apr 4, 2009) | |||
| Operating Cash Flow (6mo) | $82.6 million | |||
| Total Debt | $158.3 million ($135M term + $23.3M leases) |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 13.8% (quarterly) and 7.1% (six-month) year-over-year. Declines were driven by reduced demand in the defense/security/aerospace and industrial/commercial sectors, specifically from a large unnamed defense customer.
- Margin Compression: Gross margins declined due to lower sales volumes and unfavorable customer mix. Fixed manufacturing costs remained relatively consistent, exacerbating the margin impact of lower revenue.
- Restructuring and Impairment: The company recorded $8.0 million in charges for the quarter and $8.6 million for the six-month period. This includes a $5.7 million goodwill impairment charge related to the European (Kelso, Scotland) facility and severance costs for workforce reductions in the U.S. and Mexico.
- Tax Benefit: Net income was favorably impacted by a tax benefit in the quarter, resulting in an effective tax rate of (51)% for the three months ended April 4, 2009, compared to 22% in the prior year. This was due to discrete tax events and a higher proportion of income in tax-holiday jurisdictions (Malaysia and China).
Guidance, Outlook, and Risks
- Outlook: Management is refraining from providing full-year fiscal 2009 revenue targets due to economic uncertainty and poor visibility. For the third quarter of fiscal 2009, net sales are expected to range between $355 million and $385 million. Diluted EPS is expected to be between $0.18 and $0.25, excluding restructuring costs.
- Liquidity: The company holds $201.3 million in cash and cash equivalents. It has a $150 million term loan (with $135 million outstanding) and a $100 million revolving credit facility (currently unused). Management believes existing resources are sufficient for the next 12 months.
- Risks:
- Economic Conditions: Continued global economic weakness and credit market instability may further reduce customer demand.
- Customer Concentration: The top 10 customers accounted for 58% of sales in the quarter; Juniper Networks alone represented 23%.
- Auction Rate Securities: The company holds $2.0 million in auction rate securities that have failed to auction since 2008, limiting liquidity for these assets.
- Legal: A consolidated securities class action lawsuit was dismissed in March 2009, but plaintiffs retain the right to appeal.
Investor Verification Checklist
- Verify the sustainability of the $5.7 million goodwill impairment charge and whether further impairments are likely in other segments.
- Monitor the recovery of the large unnamed defense customer, which drove a significant portion of the revenue decline.
- Assess the liquidity risk associated with the $2.0 million in illiquid auction rate securities.
- Track the effectiveness of cost-cutting measures (workforce reductions) in stabilizing operating margins as revenue fluctuates.
- Confirm the timeline for the resolution of the dismissed securities class action lawsuit regarding potential appeals.