Plexus Corp. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended April 4, 2020. The quarter was 13 weeks; fiscal 2020 has 53 weeks. Plexus provides electronic manufacturing services across AMER, APAC and EMEA.
Financial performance
| Metric | Q2 FY2020 | Q2 FY2019 | Six months FY2020 | Six months FY2019 |
|---|---|---|---|---|
| Net sales | $767.4 million | $789.1 million | $1,619.8 million | $1,554.6 million |
| Gross margin | 8.0% | 9.0% | 8.7% | 9.2% |
| Operating income | $17.2 million | $33.2 million | $57.1 million | $70.1 million |
| Operating margin | 2.2% | 4.2% | 3.5% | 4.5% |
| Net income | $12.9 million | $24.8 million | $43.9 million | $47.0 million |
| Diluted EPS | $0.43 | $0.79 | $1.46 | $1.48 |
- Cash flow: Six-month operating cash flow was $45.4 million, versus cash used of $34.5 million a year earlier. Capital expenditures were $30.7 million; reported free cash flow, a non-GAAP measure, was $14.7 million versus negative $89.1 million.
- Liquidity and debt: At April 4, cash and cash equivalents were $225.8 million, plus $1.5 million restricted cash. Total debt, finance leases and other financing obligations were $294.2 million. Current assets were $1.595 billion and current liabilities $900.9 million. About 91% of cash was held outside the U.S.
- Other metrics: Six-month effective tax rate was 9.1%, compared with 25.2%; management attributed the change primarily to geographic earnings mix and prior-year tax items. Six-month ROIC was 11.4% and economic return 2.6%, both non-GAAP measures.
Changes versus prior comparable periods
- Quarterly sales declined 2.7%, while six-month sales grew 4.2%. Quarterly net income fell 48.0% and diluted EPS declined from $0.79 to $0.43; six-month net income fell 6.6%.
- Profitability weakened: quarterly gross margin contracted 100 basis points and operating margin 200 basis points. The filing cites lower sales, reduced fixed-cost leverage, unfavorable customer mix, COVID-related employee and supply costs, and higher selling and administrative costs.
- Sales mix shifted: six-month Industrial/Commercial sales rose 27.1% and Aerospace/Defense rose 25.3%; Communications fell 50.4% and Healthcare/Life Sciences fell 2.8%. APAC six-month sales rose 10.9%, while AMER declined 4.2%.
- AMER quarterly operating income fell to $0.3 million from $14.2 million; APAC increased to $49.9 million from $48.7 million. Six-month share repurchases were $19.5 million, versus $106.3 million in the prior-year period; repurchases were suspended indefinitely in March.
Outlook, risks and unusual items
- COVID-19: China operations were significantly disrupted for several weeks; Malaysia faced workforce restrictions, though management said production capacity there had returned to pre-pandemic levels. The company reported supplier delays and customer uncertainty, alongside increased healthcare-related demand. Management cautioned that the full effect remained uncertain and could materially harm results, liquidity or operations.
- Funding actions: On April 29, 2020, after quarter-end, Plexus amended its credit facility to add a $138 million unsecured delayed-draw term loan and subsequently drew the full amount. The loan matures April 28, 2021. The company said cash and financing resources were expected to meet needs for the next 12 months, but noted financing access could be constrained if conditions worsen.
- Guidance: Management estimated a fiscal 2020 effective tax rate of 12%–14% and funded capital expenditures of approximately $50–$60 million. It provided no clear revenue or earnings forecast in the supplied filing text.
- Restructuring and credit costs: The quarter included $6.0 million of charges tied primarily to closing the Boulder Design Center: $3.1 million of asset impairments and $2.9 million of severance. The company also recorded $3.3 million of quarterly bad-debt expense and $3.4 million for the six-month period.
- Other exposures: Six-month inventory increased to $765.8 million from $700.9 million at fiscal year-end. Contract assets were $111.3 million. Receivables factoring is through uncommitted programs; six-month receivables sales were $416.1 million. Management said ordinary-course litigation and customer indemnification obligations were not expected to be material.
Key facts for investors to verify
- Whether COVID-related customer demand, supplier availability and operating restrictions continued to affect sales, costs and production after April 4.
- The effect of the full $138 million post-quarter term-loan draw on debt, interest expense, covenant headroom and liquidity.
- Whether inventory, contract assets, receivables and customer deposits converted to cash as expected, and whether factoring remained available on acceptable terms.
- Whether margin pressure, AMER performance, Communications-sector declines and Boulder restructuring costs persisted.
- Actual fiscal 2020 tax rate and capital expenditures compared with management’s stated ranges.