Plexus Announces Fiscal Fourth Quarter and Fiscal Year 2018 Financial Results

Plexus Announces Fiscal Fourth Quarter and Fiscal Year 2018 Financial Results

  • Record fiscal fourth quarter revenue of $771 million and record fiscal 2018 revenue of $2.9 billion
  • Fiscal fourth quarter GAAP diluted EPS of $2.20
  • Fiscal fourth quarter non-GAAP adjusted diluted EPS of $0.96, excluding $1.24 per share related to net non-recurring tax benefits
  • Initiates fiscal first quarter 2019 revenue guidance of $750 to $790 million with GAAP diluted EPS of $0.85 to $0.95

NEENAH, Wis., Oct. 24, 2018 (GLOBE NEWSWIRE) -- Plexus (NASDAQ: PLXS) today announced financial results for its fiscal fourth quarter ended September 29, 2018, and guidance for its fiscal first quarter ending December 29, 2018.

  Three Months Ended
  Sept 29, 2018 Sept 29, 2018 Dec 29, 2018
  Q4F18 Results Q4F18 Guidance Q1F19 Guidance
Summary GAAP Items     
Revenue (in millions)$771   $735 to $775 $750 to $790
Operating margin 4.8%  4.5% to 4.9% 4.6% to 5.0%
Diluted EPS (1)$2.20   $0.82 to $0.92 $0.85 to $0.95
          
Summary Non-GAAP Items (2)        
Adjusted diluted EPS (1)$0.96      
Return on invested capital (ROIC) 16.1%     
Economic Return 6.6%     
       
(1)Includes stock-based compensation expense of $0.14 for Q4F18 results and $0.15 for Q1F19 guidance.
(2)Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures and a reconciliation to GAAP.

Fiscal Fourth Quarter 2018 Information

  • Won 44 manufacturing programs during the quarter representing $233 million in annualized revenue when fully ramped into production
  • Trailing four quarter wins total $889 million in annualized revenue when fully ramped into production
  • Purchased $39.2 million of our shares at an average price of $61.32 per share under our existing share repurchase programs

Fiscal Year 2018 Information

  • Revenue of $2.9 billion, up 14% from fiscal 2017
  • GAAP diluted EPS of $0.38
  • Non-GAAP adjusted diluted EPS of $3.23, excluding $2.46 per share related to net non-recurring tax expenses and $0.39 per share related to the fiscal second quarter one-time bonus paid to full-time, non-executive employees
  • ROIC of 16.1%, delivering an economic return of 660 basis points above our weighted average cost of capital
  • Purchased $137 million of our shares at an average price of $60.68 per share under our existing share repurchase programs

Todd Kelsey, President and CEO, commented, “We continue to produce meaningful growth, finishing our fiscal fourth quarter with record revenue of $771 million, near the high end of our guidance range.  In addition, as a result of strong execution, we delivered fiscal fourth quarter 2018 operating margin of 4.8%, comfortably within our target range of 4.7% to 5.0%.  Our solid growth and operating performance led to non-GAAP diluted EPS of $0.96, a result that was above our guidance range.  Further, we delivered fiscal year 2018 revenue of $2.9 billion, representing a 14% increase over fiscal 2017.”

Patrick Jermain, Senior Vice President and CFO, commented, “During the fiscal fourth quarter, we repatriated over $50 million of offshore cash which we deployed by investing in facilities and working capital and repurchasing approximately $39 million of shares under our repurchase programs.  In total, we brought back approximately $430 million in fiscal 2018.” 

Mr. Jermain continued, “Fiscal fourth quarter GAAP diluted EPS included a net benefit of $1.24 per share related to U.S. tax reform. The benefit resulted from adjustments made in applying additional guidance from the U.S. Department of the Treasury, as well as our utilization of accumulated U.S. net operating loss carryforwards, which reduced the repatriation tax.  We also recognized a benefit from the reversal of our valuation allowance previously maintained on our U.S. net deferred tax assets.  With future projected taxable income in the U.S. due to tax reform, the valuation allowance is no longer required.”

Mr. Kelsey continued, “As we look to the fiscal first quarter of 2019, we are guiding revenue of $750 million to $790 million.  We expect continued strong operating performance with operating margin in the range of 4.6% to 5.0% and GAAP diluted EPS in the range of $0.85 to $0.95.  We believe that our operating performance strength in the fiscal first quarter of 2019 will alleviate the impact of increased tax expense, estimated at $0.05 per share above the previous quarter.”

Mr. Kelsey concluded, “We anticipate fiscal 2019 to be another strong growth year as we achieve full production volumes of recently launched programs and expect to capitalize on our robust fiscal 2018 wins performance.  Further, we currently see overall strength in our end markets and believe we can navigate the ongoing supply chain constraints.  This growth, when combined with operating margin within our 4.7% to 5.0% target range and our share repurchase program, should result in meaningful EPS expansion.”

Quarterly & Annual ComparisonThree Months Ended Twelve Months Ended
 Sept 29, 2018 Jun 30, 2018 Sept 30, 2017 Sept 29, 2018 Sept 30, 2017
(in thousands, except EPS)Q4F18 Q3F18 Q4F17 F18 F17
Revenue$771,178   $726,385   $669,852   $2,873,508   $2,528,052  
Gross profit73,304   67,821   66,514   257,600   255,855  
Operating income36,965   32,446   33,965   118,283   129,908  
Net income72,742   26,501   29,009   13,040   112,062  
Diluted EPS$2.20   $0.79   $0.84   $0.38   $3.24  
Adjusted net income (1)31,615    *    *   109,600    *  
Adjusted diluted EPS (1)$0.96    *    *   $3.23    *  
          
Gross margin9.5%  9.3%  9.9%  9.0%  10.1% 
Adjusted gross margin (1) *    *    *   9.4%   *  
Operating margin4.8%  4.5%  5.1%  4.1%  5.1% 
Adjusted operating margin (1) *    *    *   4.6%   *  
          
ROIC*16.1%  15.9%  16.2%  16.1%  16.2% 
Economic Return*6.6%  6.4%  5.7%  6.6%  5.7% 
          
(1) Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures discussed in this release, such as adjusted gross margin, adjusted gross profit, adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted EPS, ROIC and Economic Return, and a reconciliation of these measures to GAAP.
* No adjustments were made in the indicated periods.

Business Segment and Market Sector Revenue
The Company measures operational performance and allocates resources on a geographic segment basis.  Plexus also reports revenue based on the market sector breakout set forth in the table below, which reflects the Company’s global market sector focused business development strategy.  Top 10 customers comprised 59% of revenue during the fiscal fourth quarter, up two percentage points from the fiscal third quarter of 2018, and 57% of revenue during fiscal year 2018, up one percentage point from the prior fiscal year.

Business Segments ($ in millions)Three Months Ended Twelve Months Ended
 Sept 29, 2018 Sept 30, 2017 Sept 29, 2018 Sept 30, 2017
Americas$320
  $314
  $1,219
  $1,166
 
Asia-Pacific418  334  1,498  1,279 
Europe, Middle East, and Africa69  55  281  193 
Elimination of inter-segment sales(36) (33) (124) (110)
Total Revenue$771
  $670
  $2,874
  $2,528
 


Market Sectors ($ in millions)Three Months Ended Twelve Months Ended
 Sept 29, 2018
Q4F18
 Jun 30, 2018
Q3F18
 Sept 30, 2017
Q4F17
 Sept 29, 2018
Q4F18
 Sept 30, 2017
Q4F17
Healthcare/Life Sciences$289 37% $266 37% $233 35% $1,040 36% $859 34%
Industrial/Commercial244 32% 225 31% 189 28% 918 32% 788 31%
Communications118 15% 120 16% 140 21% 471 16% 478 19%
Aerospace/Defense120 16% 115 16% 108 16% 445 16% 403 16%
Total Revenue$771   $726   $670   $2,874   $2,528  
               

Non-GAAP Supplemental Information
Plexus provides non-GAAP supplemental information, such as ROIC, Economic Return, and free cash flow, because such measures are used for internal management goals and decision making, and because they provide management and investors additional insight into financial performance.  In addition, management uses these and other non-GAAP measures, such as adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted EPS, to provide a better understanding of core performance for purposes of period-to-period comparisons.  Plexus believes that these measures are also useful to investors because they provide further insight by eliminating the effect of items such as the one-time, non-executive employee bonus paid in the second quarter of fiscal 2018 and the transitional effects of the U.S. Tax Cuts & Jobs Act (“U.S. Tax Reform”) that are not reflective of continuing operations.  For a full reconciliation of non-GAAP measures to comparable GAAP measures, please refer to the attached Non-GAAP Supplemental Information Tables.

ROIC and Economic Return
ROIC for both fiscal 2018 and the fiscal fourth quarter was 16.1%.  The Company defines ROIC as tax-effected annualized adjusted operating income divided by average invested capital over a five-quarter period for the fourth fiscal quarter.  Invested capital is defined as equity plus debt, less cash and cash equivalents.  The Company’s weighted average cost of capital for fiscal 2018 was 9.5%.  ROIC for both fiscal 2018 and the fiscal fourth quarter less the Company’s weighted average cost of capital resulted in an economic return of 6.6%.

Free Cash Flow Calculation
The Company defines free cash flow as cash flows provided by operations less capital expenditures.  For the three months ended September 29, 2018, cash flows provided by operations was $25.4 million, less capital expenditures of $10.7 million, resulting in free cash flow of $14.7 million.  For the twelve months ended September 29, 2018, cash flows provided by operations was $66.8 million, less capital expenditures of $62.8 million, resulting in free cash flow of $4.0 million.

Cash Cycle DaysThree Months Ended
 Sept 29, 2018
Q4F18
 Jun 30, 2018
Q3F18
 Sept 30, 2017
Q4F17
Days in Accounts Receivable47 48 50
Days in Inventory104 105 99
Days in Accounts Payable(66) (66) (63)
Days in Cash Deposits(12) (14) (16)
Annualized Cash Cycle*73 73 70
*We calculate cash cycle as the sum of days in accounts receivable and days in inventory, less days in accounts payable and days in cash deposits.

Conference Call and Webcast Information

What:Plexus Fiscal Q4 2018 Earnings Conference Call and Webcast
When:Thursday, October 25, 2018 at 8:30 a.m. Eastern Time
Where:Participants are encouraged to join the live webcast at the investor relations section of the Plexus website, https://plexus.gcs-web.com/events-and-presentations/upcoming-events, where a slide presentation reviewing fiscal fourth quarter 2018 results will also be made available ahead of the conference call.

Conference call at +1.800.773.2954 with passcode: 47612122
  
Replay:The webcast will be archived on the Plexus website and available via telephone replay at +1.888.843.7419 or +1.630.652.3042 with passcode: 47612122

Investor and Media Contact
Heather Beresford
+1.920.751.3612
[email protected]

About Plexus – The Product Realization Company
Since 1979, Plexus has been partnering with companies to create the products that build a better world.  We are a team of over 18,000, providing global Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing, and Aftermarket Services.  Plexus is an industry leader that specializes in serving customers with complex products used in demanding regulatory environments.  With a culture built around innovation and customer service, Plexus’ teams create customized end-to-end solutions to assure the realization of the most intricate products.  For more information about Plexus, visit our website, plexus.com.

Safe Harbor and Fair Disclosure Statement
The statements contained in this press release that are guidance or which are not historical facts (such as statements in the future tense and statements including believe, expect, intend, plan, anticipate, goal, target and similar terms and concepts), including all discussions of periods which are not yet completed, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include, but are not limited to: the risk of customer delays, changes, cancellations or forecast inaccuracies in both ongoing and new programs; the lack of visibility of future orders, particularly in view of changing economic conditions; the economic performance of the industries, sectors and customers we serve; the effects of shortages and delays in obtaining components as a result of economic cycles, natural disasters or otherwise; the effects of tariffs and other trade protection measures; the effects of the volume of revenue from certain sectors or programs on our margins in particular periods; our ability to secure new customers, maintain our current customer base and deliver product on a timely basis; the particular risks relative to new or recent customers, programs or services, which risks include customer and other delays, start-up costs, potential inability to execute, the establishment of appropriate terms of agreements, and the lack of a track record of order volume and timing; the risks of concentration of work for certain customers; the effect of start-up costs of new programs and facilities; possible unexpected costs and operating disruption in transitioning programs, including transitions between Company facilities; the risk that new program wins and/or customer demand may not result in the expected revenue or profitability; the fact that customer orders may not lead to long-term relationships; our ability to manage successfully and execute a complex business model characterized by high product mix, low volumes and demanding quality, regulatory, and other requirements; the ability to realize anticipated savings from restructuring or similar actions, as well as the adequacy of related charges as compared to actual expenses; increasing regulatory and compliance requirements; risks related to information technology systems and data security; the effects of U.S. Tax Reform and of related foreign jurisdiction tax developments; current or potential future barriers to the repatriation of funds that are currently held outside of the United States as a result of actions taken by other countries or otherwise; the potential effects of jurisdictional results on our taxes, tax rates, and our ability to use deferred tax assets and net operating losses; the risks associated with excess and obsolete inventory, including the risk that inventory purchased on behalf of our customers may not be consumed or otherwise paid for by the customer, resulting in an inventory write-off; the weakness of areas of the global economy; the effect of changes in the pricing and margins of products; raw materials and component cost fluctuations; the potential effect of fluctuations in the value of the currencies in which we transact business; the effects of changes in economic conditions, political conditions, and tax matters in the United States and in the other countries in which we do business (including as a result of the United Kingdom’s pending exit from the European Union); the potential effect of other world or local events or other events outside our control (such as changes in energy prices, terrorism and weather events); the impact of increased competition; changes in financial accounting standards; and other risks detailed herein and in our other Securities and Exchange Commission filings (particularly in "Risk Factors" in our fiscal 2017 Form 10-K).

PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
      
 Three Months Ended Twelve Months Ended
 Sept 29, Sept 30, Sept 29, Sept 30,
 2018 2017 2018 2017
Net sales$771,178  $669,852  $2,873,508  $2,528,052 
Cost of sales697,874  603,338  2,615,908  2,272,197 
Gross profit 73,304   66,514   257,600   255,855 
Selling and administrative expenses36,339  32,549  139,317  125,947 
Operating income 36,965   33,965   118,283   129,908 
Other income (expense):       
Interest expense(2,044) (3,748) (12,226) (13,578)
Interest income647  1,487  4,696  5,042 
Miscellaneous(1,268) (697) (3,143) 451 
Income before income taxes 34,300   31,007   107,610   121,823 
Income tax (benefit) expense(38,442) 1,998  94,570  9,761 
Net income$72,742  $29,009  $13,040  $112,062 
Earnings per share:       
Basic$2.27  $0.86  $0.40  $3.33 
Diluted$2.20  $0.84  $0.38  $3.24 
Weighted average shares outstanding:       
Basic 32,113   33,541   33,003   33,612 
Diluted33,020  34,482  33,919  34,553 


PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
    
 Sept 29, Sept 30,
 2018 2017
ASSETS   
Current assets:   
Cash and cash equivalents$297,269  $568,860 
Restricted cash417  394 
Accounts receivable394,827  365,513 
Inventories794,346  654,642 
Prepaid expenses and other30,302  28,046 
Total current assets 1,517,161   1,617,455 
Property, plant and equipment, net341,306  314,665 
Deferred income taxes10,825  5,292 
Intangible assets8,239   
Other55,111  38,770 
Total non-current assets 415,481   358,727 
Total assets$1,932,642  $1,976,182 
    
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Current liabilities:   
Current portion of long-term debt and capital lease obligations$5,532  $286,934 
Accounts payable506,322  413,999 
Customer deposits90,782  107,837 
Accrued salaries and wages66,874  49,376 
Other accrued liabilities68,163  49,445 
Total current liabilities 737,673   907,591 
Long-term debt and capital lease obligations, net of current portion183,085  26,173 
Accrued income taxes payable56,130   
Deferred income taxes14,376   
Other liabilities20,235  16,479 
Total non-current liabilities 273,826   42,652 
Total liabilities 1,011,499   950,243 
Shareholders’ equity:   
Common stock, $.01 par value, 200,000 shares authorized,   
52,567 and 51,934 shares issued, respectively,   
and 31,838 and 33,464 shares outstanding, respectively526  519 
Additional paid-in-capital581,488  555,297 
Common stock held in treasury, at cost, 20,729 and 18,470, respectively(711,138) (574,104)
Retained earnings1,062,246  1,049,206 
Accumulated other comprehensive loss(11,979) (4,979)
Total shareholders’ equity 921,143   1,025,939 
Total liabilities and shareholders’ equity$1,932,642  $1,976,182 
    


PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 1
(in thousands, except per share data)
(unaudited)
          
 Three Months Ended Twelve Months Ended
 Sept 29, Jun 30, Sept 30, Sept 29, Sept 30,
 2018 2018 2017 2018 2017
Gross profit, as reported$73,304  $67,821  $66,514  $257,600  $255,855 
Gross margin, as reported 9.5%  9.3%  9.9%  9.0%  10.1%
                    
Non-GAAP adjustments:                   
One-time employee bonus (1)          12,590    
Adjusted gross profit$73,304  $67,821  $66,514  $270,190  $255,855 
Adjusted gross margin 9.5%  9.3%  9.9%  9.4%  10.1%
          
Operating income, as reported$36,965  $32,446  $33,965  $118,283  $129,908 
Operating margin, as reported 4.8%  4.5%  5.1%  4.1%  5.1%
          
Non-GAAP adjustments:         
One-time employee bonus (1)          13,512    
Adjusted operating income$36,965  $32,446  $33,965  $131,795  $129,908 
Adjusted operating margin 4.8%  4.5%  5.1%  4.6%  5.1%
          
Net income, as reported$72,742  $26,501  $29,009  $13,040  $112,062 
          
Non-GAAP adjustments:         
One-time employee bonus, net of tax (1)          13,176    
Non-recurring tax impacts (2) (41,127)        83,384    
Adjusted net income$31,615  $26,501  $29,009  $109,600  $112,062 
                    
Diluted earnings per share, as reported$2.20  $0.79  $0.84  $0.38  $3.24 
                    
Non-GAAP per share adjustments:                   
One-time employee bonus, net of tax (1)          0.39    
Non-recurring tax impacts (2) (1.24)        2.46    
Adjusted diluted earnings per share$0.96  $0.79  $0.84  $3.23  $3.24 
          
(1)  During Q2F18, a $13.5 million one-time employee bonus was paid; of this amount, $12.6 million was recorded in cost of sales and $0.9 million was recorded in selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.
(2)  During the three months ended September 29, 2018, non-recurring tax benefits of $38.6 million resulted primarily from the use of current year tax losses and net operating loss carryforwards against the deemed repatriation tax as well as a $3.6 million benefit due to the reversal of a valuation allowance on U.S. deferred tax assets. These benefits were partially offset by a $1.1 million tax expense for other non-recurring tax items.

During the twelve months ended September 29, 2018, non-recurring tax expenses of $85.9 million and $1.1 million were recorded as a result of U.S. Tax Reform and other non-recurring tax items, respectively, which were partially offset by a $3.6 million tax benefit from the reversal of a valuation allowance on U.S. deferred tax assets.
 


PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 2
 (in thousands)
(unaudited)
      
ROIC and Economic Return CalculationsTwelve Months Ended Nine Months Ended Twelve Months Ended
 Sept 29, Jun 30, Sept 30,
 2018 2018 2017
Operating income, as reported $118,283    $81,318    $129,908  
One-time employee bonus+13,512   +13,512   +  
Adjusted operating income $131,795    $94,830    $129,908  
    ÷3     
     $31,610     
    x4     
Adjusted annualized operating income $131,795    $126,440    $129,908  
Adjusted effective tax ratex10%  x10%  x8% 
Tax impact 13,180    12,644    10,393  
Adjusted operating income (tax effected) $118,615    $113,796    $119,515  
         
Average invested capital÷$735,598   ÷$716,374   ÷$738,266  
         
ROIC 16.1%   15.9%   16.2% 
Weighted average cost of capital-9.5%  -9.5%  -10.5% 
Economic return 6.6%   6.4%   5.7% 


 Three Months Ended
Average Invested CapitalSept 29, Jun 30, Mar 31, Dec 30, Sept 30,
Calculations2018
 2018
 2018
 2017
 2017
Equity$921,143
  $882,360
  $920,503
  $933,849
  $1,025,939
 
Plus:         
Debt - current5,532  6,365  180,772  179,881  286,934 
Debt - long-term183,085  180,204  27,217  26,047  26,173 
Less:         
Cash and cash equivalents(297,269) (332,723) (402,470) (506,694) (568,860)
 $812,491
  $736,206
  $726,022
  $633,083
  $770,186
 


 Three Months Ended
Average Invested CapitalJul 1, Apr 1, Dec 31, Oct 1,
Calculations2017
 2017
 2016
 2016
Equity$991,306
  $961,438
  $927,542
  $916,797
 
Plus:       
Debt - current267,297  92,623  78,879  78,507 
Debt - long-term26,138  185,638  184,136  184,002 
Less:       
Cash and cash equivalents(519,172) (524,520) (496,505) (432,964)
 $765,569
  $715,179
  $694,052
  $746,342