A month has gone by since the last earnings report for Plexus (PLXS). Shares have lost about 6.9% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
Higher Healthcare & Aerospace Revenues Aids Plexus
Plexus reported second-quarter fiscal 2019 adjusted earnings of 79 cents per share, which increased 6.8% year over year. However, the figure came below the Zacks Consensus Estimate of 85 cents.
Nevertheless, revenues of $789 million beat the consensus mark of $777 million and increased 12.9% on a year-over-year basis. Strong performance of Healthcare/Life Sciences and Aerospace/Defense segments drove top-line growth.
Healthcare/Life Sciences revenues (38% of total revenues) were up 21% from the year-ago quarter to $300 million.
Industrial/Commercial revenues (31.7%) were up 3.3% year over year to $250 million.
Aerospace/Defense segment revenues (17.7%) grew 27.3% on a year-over-year basis to $140 million.
Revenues from the Communications sector (12.5%) remained flat year over year at $99 million.
Region-wise, revenues from the Americas (AMER) increased 20.5% from the year-ago quarter to $364 million. Revenues from the Asia Pacific region (APAC) rose 8% to $378 million. Revenues from Europe, the Middle East and Africa (EMEA) totaled $76 million, up 2.7% year over year.
Plexus won 36 manufacturing contracts during the quarter worth $247 million in annualized revenues. Manufacturing wins contributed $912 million in annualized revenues in the trailing four quarters.
Notably, the top 10 customers of the company together accounted for 59% of net revenues, which stayed flat sequentially.
Adjusted gross profit increased 7.8% year over year $71 million. However, adjusted gross margin contracted 40 basis points (bps) year over year to 9% in the second quarter.
Reported selling and administrative expenses (4.7% of revenues) increased 5.1% from the year-ago quarter to approximately $37.5 million.
Plexus reported adjusted operating income of $33.2 million, up 7.6% year over year. However, adjusted operating margin contracted 20 bps on a year-over-year basis to 4.2%.
Notably, margins came under pressure as a result of unfavorable customer mix.
Return on Invested Capital (ROIC) in second-quarter fiscal 2019 was 13.3%
Balance Sheet & Cash Flow
Plexus exited the quarter with cash & cash equivalents worth $184 million compared with $188.8 million in first-quarter fiscal 2019.
In second-quarter fiscal 2019, the company used cash of $1.2 million for operations and $29.7 million for capital expenditures, resulting in negative free cash flow of $30.9 million.
Plexus had long-term debt of $187.1 million compared with $187.6 million in the year-ago quarter. Share repurchases for the quarter amounted to $56.2 million.
Third-Quarter Fiscal 2019
Revenues are projected in the range of $760 million and $800 million and operating margin is expected to be in the band of 4.3% and 4.7%.
Additionally, Plexus expects GAAP earnings in the range of 76 cents to 86 cents.
Growth in Aerospace/Defense and Healthcare/Life Sciences sectors may likely be offset by Communications sector’s decline and led to the soft guidance
Plexus anticipates free cash flow to be in the range of $40 to $60 million. Moreover, the company expects to achieve its “target operating margin range” in fourth-quarter fiscal 2019 owing to enhanced productivity and reduction in costs.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.94% due to these changes.
At this time, Plexus has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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. It's no surprise Plexus has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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