Plexus Corp. — Q3 FY2021 Form 10-Q
Business context and reporting period
Plexus provides design, supply-chain, manufacturing and aftermarket services in the electronic manufacturing services industry, serving Industrial, Healthcare/Life Sciences and Aerospace/Defense customers. This unaudited report covers the 13 weeks ended July 3, 2021, and the nine months ended that date; comparisons are to the periods ended July 4, 2020.
Financial performance
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Net sales | $814.4m | $857.4m | $2,525.6m | $2,477.2m |
| Gross profit / margin | $74.1m / 9.1% | $82.9m / 9.7% | $244.3m / 9.7% | $223.5m / 9.0% |
| Operating income / margin | $36.4m / 4.5% | $45.9m / 5.3% | $133.9m / 5.3% | $103.0m / 4.2% |
| Net income | $27.6m | $35.8m | $105.6m | $79.8m |
| Diluted EPS | $0.95 | $1.20 | $3.60 | $2.66 |
For the quarter, sales fell 5.0%, operating income fell 20.7%, and net income fell 22.9%. Management cited reduced sales, lower labor productivity, higher fixed costs and restructuring charges; lower selling and administrative expense partly offset the decline. For the nine months, sales grew 2.0%, operating income 30.0%, and net income 32.3%, supported by improved customer mix and labor productivity and lower S&A and restructuring costs.
Quarterly sales in AMER rose 4.2%, while APAC fell 7.3% and EMEA fell 16.7%. Healthcare/Life Sciences increased 8.8% over nine months; Industrial increased 5.8%. Aerospace/Defense declined 20.3% over nine months, primarily due to weaker commercial aerospace demand amid COVID-19.
Cash flow, debt and liquidity
Nine-month operating cash flow was $131.5m, versus $92.5m a year earlier; capital expenditure was $34.4m, producing reported free cash flow of $97.1m versus $51.3m. Cash and restricted cash totaled $307.5m at July 3, 2021, down from $387.9m at fiscal year-end. Inventory rose to $874.7m from $763.5m, reflecting program ramps and longer component lead times.
Total debt, finance lease and other financing obligations were $248.2m, including $50.0m drawn under the $350m revolving facility; $300m of revolver capacity remained available. The company reported compliance with debt covenants. Nine-month financing cash outflow was $179.1m, including $79.2m of share repurchases and net debt repayments. The company had $26.1m remaining under its repurchase authorization. Cash and restricted cash and total obligations are not directly comparable measures; 91% of cash and cash equivalents was held outside the U.S.
Outlook, commentary and risks
Management said workforce curtailments and restrictions in Malaysia contributed to missing previously issued third-quarter guidance; the filing text does not provide a clear value for that guidance. It anticipated component shortages and delays to persist at least through the end of calendar 2021, with extended lead times potentially requiring additional inventory investment in Q4 FY2021 and reducing operating cash flow. Management expected cash, operating cash flow and available credit to meet needs for the next 12 months. FY2021 capital expenditures were estimated at $70m–$80m; the expected annual effective tax rate was 12%–14%.
Principal disclosed risks include COVID-19 impacts on employees, customers, suppliers and logistics; component shortages, price increases and supplier quality issues; inventory obsolescence; customer order volatility and concentration; labor and execution challenges; and foreign-exchange, tax and regulatory exposures. The company uses currency derivatives for hedging, not speculation, and said a 10% currency or interest-rate change would not have a material effect based on its exposure at quarter-end. Litigation and uncertain-tax-position settlements were not expected to have a material effect. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Malaysia workforce restrictions and component shortages eased, and how they affected subsequent sales, margins and delivery performance.
- Whether elevated inventory converted into customer shipments and cash, and whether inventory obsolescence or working-capital needs increased.
- Actual FY2021 capital expenditures and tax rate compared with management’s estimates.
- Cash availability, foreign-held cash, revolver usage and covenant compliance; also consider the uncommitted nature of receivables-sale facilities, under which $574.6m of receivables were sold in the nine-month period.
- Whether ongoing repurchases and the remaining authorization were consistent with capital needs and operating conditions.