Plexus Corp. — Q2 FY2022 Form 10-Q
Reporting period: Fiscal quarter ended April 2, 2022 (13 weeks); six-month results are compared with the six months ended April 3, 2021. Plexus provides electronic manufacturing services, including design, supply-chain, manufacturing and aftermarket services, across AMER, APAC and EMEA, serving industrial, healthcare/life sciences, and aerospace/defense markets.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Net sales | $888.7M | $880.9M | $1,706.2M | $1,711.2M |
| Gross profit / margin | $76.5M / 8.6% | $91.0M / 10.3% | $146.5M / 8.6% | $170.3M / 10.0% |
| Operating income / margin | $35.8M / 4.0% | $50.7M / 5.8% | $66.3M / 3.9% | $97.6M / 5.7% |
| Net income | $26.9M | $41.8M | $50.3M | $78.0M |
| Diluted EPS | $0.95 | $1.42 | $1.76 | $2.65 |
| Operating cash flow | Not provided by quarter in this filing | $(4.7)M | $88.9M |
- Quarterly sales increased 0.9%, but six-month sales declined 0.3%. The six-month reduction in operating income was 32.1%; net income fell 35.5%.
- Margins and earnings weakened amid higher fixed, labor and component costs, unfavorable customer mix, reduced labor productivity, and supply-chain inefficiencies. Management attributed higher quarterly SG&A mainly to compensation costs; six-month SG&A also reflected bad-debt expense versus a prior-year recovery of a reserved receivable.
- Segment mix shifted: Q2 APAC sales rose 16.3% year over year, while AMER fell 14.7% and EMEA fell 11.5%. APAC operating income increased; AMER operating income declined substantially. The filing cites customer demand, supply constraints, customer disengagements and end-of-life products among the drivers.
- Cash and restricted cash were $308.9M at April 2, 2022, versus $270.5M at October 2, 2021. Total debt, finance lease and other financing obligations were $408.5M, including $212.0M drawn on the revolving facility. The company reported $138M of the $350M facility available and was compliant with debt covenants.
- Current assets were $2,435.0M and current liabilities $1,659.1M. Inventory increased to $1,374.3M from $972.3M; customer deposits increased to $364.6M from $205.0M. The filing says inventory accumulation supports long-lead components and program ramps, with customer deposits helping offset inventory exposure.
- Six-month capital expenditures were $64.2M; management estimated FY2022 funded capital expenditures of approximately $110M–$130M, primarily for Bangkok footprint expansion, program ramps and equipment replacement. Six-month free cash flow, a non-GAAP measure, was negative $68.8M.
Outlook, commentary and risks
- Management expected supply constraints and elevated inventory investment to persist through the remainder of FY2022, limiting the ability to meet customer demand. COVID-related labor shortages, facility restrictions, supplier disruption and operational inefficiencies remained concerns.
- Management expected inflation in components, labor and operating costs to continue in the near term. Customer pricing recoveries had largely mitigated cost inflation, but could dilute operating margins; inability to recover costs or weaker customer demand could affect results, cash flows and inventory.
- The company expected an FY2022 annual effective tax rate of approximately 13%–15%, assuming no tax-law changes. It reported a Q2 effective tax rate of 14.2% and a six-month rate of 13.4%.
- Russia–Ukraine-related effects had not materially affected Plexus’s results as of the filing, but broader consequences were uncertain. Other disclosed risks include component availability and pricing, customer forecast changes or cancellations, customer concentration, excess or obsolete inventory, foreign exchange, cybersecurity, and execution of new programs and facility transitions.
- Cash flows are expected to include $47.9M of remaining U.S. federal tax payments on deemed repatriated foreign earnings over the disclosed installment schedule. About 92% of cash was held outside the U.S.
- Unusual or notable items: $2.0M of six-month restructuring charges, primarily employee severance associated with an APAC facility transition; no Q2 restructuring charges. The company repurchased $35.2M of shares in the first six months, with $11.7M of authorization remaining at quarter-end.
Important facts for investors to verify
- Whether elevated inventory converts to production and sales as expected, and whether customer deposits adequately protect against excess or obsolete inventory.
- Whether supply-chain, labor and inflation pressures ease—or continue to weigh on margins, cash flow and ability to fulfill customer demand.
- Whether AMER performance stabilizes and APAC growth and profitability can offset softness in other regions.
- Whether working-capital needs remain manageable alongside planned capital expenditures, share repurchases and debt obligations; the filing reports negative six-month operating cash flow and increased revolving borrowings.
- Whether FY2022 capital spending and the 13%–15% tax-rate outlook remain on track, and whether tax or other contingencies develop materially.