A month has gone by since the last earnings report for Plexus (PLXS). Shares have lost about 0.2% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Plexus due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Higher Healthcare & Aerospace Revenues Aids Plexus
Plexus reported third-quarter fiscal 2019 adjusted earnings of 81 cents per share that missed the Zacks Consensus Estimate by a penny but increased 2.5% year over year.
Revenues of $800 million beat the consensus mark of $780 million and increased 10.2% year over year. Strong revenues from Healthcare/Life Sciences and Aerospace/Defense sectors drove the top line.
Americas (AMER) revenues increased 23.2% year over year to $367 million. Europe, the Middle East and Africa (EMEA) revenues totaled $81 million, up 9.5% year over year. Asia-Pacific (APAC) revenues inched up 0.3% to $385 million.
Plexus won 23 manufacturing contracts worth $227 million in annualized revenues during the quarter. Trailing four-quarter manufacturing wins totaled $938 million in annualized revenues.
The company stated that funnel of qualified manufacturing opportunities was $2.6 billion at the end of the quarter.
Healthcare/Life Sciences revenues were up 16.2% from the year-ago quarter to $309 million. The segment accounted for 38.6% of total revenues.
Manufacturing wins related to the Healthcare/Life Sciences sector were $114 million in the reported quarter. Plexus expanded its footprint in robotic-assisted surgery.
Industrial/Commercial revenues were up 10.2% year over year to $248 million and accounted for 31% of total revenues.
Aerospace/Defense revenues grew 31.3% to $151 million and accounted for 18.9% of total revenues.
Communications accounted for 11.5% of total revenues. Revenues from the sector decreased 23.3% year over year to $92 million.
Plexus stated that Malaysia and China facilities are benefiting from strategic wins in Healthcare/Life Sciences end-markets. Romania facility also won a large Industrial/Commercial program, which is expected to ramp up production in early fiscal 2020.
Notably, the top 10 customers of the company together accounted for 54% of net revenues.
Adjusted gross profit increased 4.7% year over year to $71 million. However, adjusted gross margin contracted 50 basis points (bps) year over year to 8.9% primarily due to unfavorable revenue mix.
Selling and administrative expenses (4.6% of revenues) increased 3.5% from the year-ago quarter to approximately $36.6 million.
Plexus reported adjusted operating income of $34.4 million, up 6% year over year. However, adjusted operating margin contracted 20 bps on a year-over-year basis to 4.3%.
Balance Sheet & Cash Flow
Plexus exited the reported quarter with cash & cash equivalents worth $198.4 million compared with $184 million in the previous quarter.
The company had long-term debt of $187.6 million compared with $187.1 million in the previous quarter.
In third-quarter fiscal 2019, cash flow from operations, capital expenditures and free cash flow were $41.5 million, $20 million and $21.5 million, respectively.
Share repurchases for the quarter amounted to $44.4 million.
For fourth-quarter fiscal 2019, revenues are projected between $760 million and $800 million.
Revenue guidance reflects strength in Aerospace/Defense segment, which is expected to grow high-single digit. While the Healthcare/Life Sciences segment revenue growth is expected to be flat, the Industrial/Commercial segment is anticipated to decline low-single digit.
However, the communications segment is anticipated to decline almost 35%.
Operating margin is expected to hit the mid-point of the guided range of 4.7-5% in the fourth quarter of fiscal 2019.
Additionally, Plexus expects GAAP earnings between 81 cents and 91 cents per share.
For fiscal 2019, Aerospace/Defense is expected to grow almost 30%. Moreover, engineering solutions are anticipated to growth roughly 25%.
For fiscal 2020, Plexus expects continued weakness in the communications end-market. Weak semiconductor capital spending is also anticipated to hurt results. Operating margin is expected to be 4.7-5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -8.51% due to these changes.
At this time, Plexus has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Plexus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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