Plexus Corp. — Q2 FY2024 Form 10-Q
Reporting period: Second fiscal quarter and six months ended March 30, 2024; comparative periods ended April 1, 2023. Plexus provides design, supply-chain, manufacturing and related services to Healthcare/Life Sciences, Industrial and Aerospace/Defense customers across AMER, APAC and EMEA.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net sales | $966.9M | $1,070.8M | $1,949.5M | $2,164.7M |
| Gross profit / margin | $88.1M / 9.1% | $103.0M / 9.6% | $176.2M / 9.0% | $204.2M / 9.4% |
| Operating income / margin | $29.5M / 3.0% | $56.9M / 5.3% | $74.6M / 3.8% | $114.3M / 5.3% |
| Net income | $16.2M | $40.8M | $45.5M | $83.0M |
| Diluted EPS | $0.58 | $1.45 | $1.62 | $2.94 |
Q2 sales fell 9.7% year over year; six-month sales fell 9.9%. Management attributed the declines primarily to customer inventory corrections, softer end-market demand and lower component pricing. Healthcare/Life Sciences sales declined 22.3% in Q2, Industrial declined 4.8%, while Aerospace/Defense increased 18.1%. Regionally, AMER and APAC sales declined 21.1% and 11.3%; EMEA grew 52.1%, including new-customer production ramps.
Operating income and diluted EPS declined sharply year over year, reflecting lower sales and margins and Q2 restructuring and other charges. Q2 net income fell 60.3%; six-month net income fell 45.2%. Effective tax rates were 14.4% for Q2 and 15.5% for the first half.
Cash flow, liquidity and debt
- First-half operating cash flow was $84.8M, versus $57.2M a year earlier. Capital expenditures were $51.5M, producing reported non-GAAP free cash flow of $33.3M, compared with $7.7M.
- Cash and restricted cash totaled $265.1M at March 30, 2024. Total debt, finance leases and other financing obligations were $438.0M, including $239.0M drawn on the credit facility. Of the $500M revolving commitment, $261M was available; expansion to $750M requires mutual agreement with the bank. The company reported compliance with debt covenants.
- Current assets were $2.63B and current liabilities $1.74B. Inventory was $1.52B; customer advance payments were $716.2M. Cash and facility availability are expected by management to cover liquidity needs for at least the next 12 months.
- Capital spending guidance for FY2024 is approximately $100M–$120M. About 93% of cash was held outside the U.S. Remaining U.S. tax payments on deemed repatriation of foreign earnings total $31.4M, scheduled for fiscal 2025 and 2026.
Material changes, outlook and risks
- Q2 included $11.0M of restructuring and other charges: workforce severance and EMEA site closure costs, partially offset by insurance proceeds related to an earlier arbitration matter. The charge included a $1.2M tax benefit.
- In April 2024, Plexus committed to another restructuring plan and anticipates approximately $6.5M of charges in Q3 FY2024, related to AMER site closure costs, asset impairment and severance.
- Management expects customer inventory corrections and weaker demand in certain sectors to remain a near-term challenge but lessen later in FY2024; prolonged softness could affect results. The stated FY2024 annual effective tax-rate outlook is approximately 15%–17%, assuming no tax-law changes. Management expects global minimum tax implementation to adversely affect tax holidays and the effective tax rate beginning in FY2025.
- Key disclosed risks include customer order delays, cancellations or forecast inaccuracies; demand and customer concentration; excess or obsolete inventory; component availability and cost pressures; execution and start-up costs on new programs; foreign-exchange and interest-rate exposure; and geopolitical, regulatory and cybersecurity risks.
- Receivables-sale programs remain an important source of operating cash: $437.4M of receivables were sold in the first half for $432.1M proceeds. The facilities are uncommitted and sales incur discounts.
Most important facts for investors to verify
- Whether customer inventory normalization and demand recover as management expects, particularly in Healthcare/Life Sciences and Industrial.
- Whether new-customer ramps and EMEA and Aerospace/Defense growth can offset weakness elsewhere without further margin deterioration.
- The expected cash and earnings impact, timing and execution of the additional AMER restructuring and the previously recorded EMEA actions.
- Working-capital trends, including inventory, customer advances and cash-cycle days, and the continued availability and economics of receivables-sale programs.
- The impact of global minimum tax changes on the FY2025 tax rate, tax holidays and deferred tax assets.