Plexus Announces Fiscal Fourth Quarter and Fiscal Year 2016 Financial Results

DATE: Oct 26, 2016

  • Fiscal fourth quarter 2016 revenue of $653 million
  • GAAP diluted EPS of $0.56; non-GAAP adjusted diluted EPS of $0.82, excluding $0.26 per share of special items
  • Initiates fiscal first quarter 2017 revenue guidance of $620 to $650 million with GAAP diluted EPS of $0.74 to $0.82

NEENAH, Wis., Oct. 26, 2016 (GLOBE NEWSWIRE) -- Plexus (NASDAQ:PLXS) today announced financial results for its fiscal fourth quarter ended October 1, 2016, and guidance for its fiscal first quarter ending December 31, 2016.

    Three Months Ended
    Oct 1, 2016   Oct 1, 2016   Dec 31, 2016
    Q4F16 Results   Q4F16 Guidance   Q1F17 Guidance
Summary GAAP Items          
Revenue (in millions) $ 653     $655 to $685   $620 to $650
Operating margin   3.6 %       4.9% to 5.2%
Diluted EPS (1) $           0.56         $0.74 to $0.82
             
Summary Non-GAAP Items (2)          
Adjusted operating margin   5.1 %   4.8% to 5.1%    
Adjusted diluted EPS $ 0.82     $0.76 to $0.84    
Return on invested capital (ROIC)     13.8 %        
Economic Return   2.8 %        
   
  (1 ) Includes stock-based compensation expense of $0.25 for Q4F16 results and $0.11 for Q1F17 guidance.
  (2 ) Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures discussed in this release, such as adjusted operating margin, adjusted diluted EPS, and free cash flow, and a reconciliation of these measures to GAAP.  Adjusted operating margin and adjusted diluted EPS exclude special items of $9.9 million for the three months ended October 1, 2016, related to accelerated stock-based compensation expense, typhoon-related losses, and restructuring and other charges.
                     


Fiscal Fourth Quarter 2016 Information

  • Won 37 programs during the quarter representing approximately $200 million in annualized revenue when fully ramped into production
  • Trailing four quarter wins total approximately $747 million in annualized revenue
  • Purchased $7.1 million of our shares at an average price of $45.81 per share

Fiscal Year 2016 Information

  • Revenue: $2.6 billion, down 3.7% from prior year
  • Diluted EPS: $2.24, including $0.57 per share of stock-based compensation expense
  • ROIC: 13.8%, 280 basis points above our weighted average cost of capital
  • Purchased $30 million of our shares at an average price of $39.43 per share

Todd Kelsey, President and CEO, commented, “Despite late fiscal fourth quarter revenue headwinds, we achieved solid operating performance and EPS, resulting in adjusted EPS firmly in our guidance range.  Our revenue was slightly below guidance as a result of softness within our Networking/Communications sector and the temporary impact to our Xiamen, China operations from Typhoon Meranti that made landfall on September 15, 2016.  When reflecting on fiscal 2016, I am pleased with our operational performance.  We quickly executed our cost reduction and productivity improvement initiatives to overcome a challenging revenue environment in the first half of the fiscal year, enabling us to achieve adjusted operating margin at the high-end of our target range of 4.7% to 5.0% in the back half of the fiscal year.”

Patrick Jermain, Senior Vice President and CFO, commented, “During the quarter we successfully repatriated $100 million in cash from our overseas operations.  We believe the additional cash will enable us to maximize shareholder value by returning excess cash to shareholders through our previously announced share repurchase program.”  Mr. Jermain continued, “Fiscal fourth quarter cash cycle days were higher than anticipated at 71 days.  The most significant contributing factor was an increase in accounts receivables due to the timing of customer shipments and mix.  We exited the fiscal year with annual free cash flow of approximately $97 million, more than doubling our performance over the prior year.”

Mr. Kelsey continued, “In the fiscal first quarter of 2017, we anticipate strong operating performance despite near-term revenue softness as a result of a delay in orders with a large Industrial/Commercial customer and further end-market weakness within our Networking/Communications market sector.  As a result, we are guiding fiscal first quarter revenue of $620 to $650 million with diluted GAAP EPS in the range of $0.74 to $0.82.  With previously disclosed restructuring activities behind us and improved resiliency in our model, we are guiding GAAP operating margin in the range of 4.9% to 5.2% for the fiscal first quarter of 2017.”

Mr. Kelsey concluded, “We have confidence in our outlook for fiscal 2017 based on our strengthening wins momentum and record funnel.  We currently anticipate that we will return to sequential growth after the fiscal first quarter and grow revenue within each of our market sectors for the full fiscal year.  Consequently, we are increasingly optimistic that our goal of a $3 billion annual revenue run rate as we exit the fiscal year is attainable.  Furthermore, with the exception of our seasonally challenged fiscal second quarter, we anticipate delivering operating margins within our target range throughout fiscal 2017.”

       
Quarterly & Annual Comparison Three Months Ended   Twelve Months Ended
  Oct 1, 2016   Jul 2, 2016   Oct 3, 2015   Oct 1, 2016   Oct 3, 2015
(in thousands, except EPS) Q4F16   Q3F16   Q4F15   F16   F15
Revenue $ 653,064     $ 667,616     $ 668,730     $ 2,556,004     $ 2,654,290  
Gross profit 61,530     62,498     59,272     227,359     239,550  
Operating profit 23,651     30,918     28,571     99,439     115,436  
Net income 19,093     26,099     23,865     76,427     94,332  
Diluted EPS $ 0.56     $ 0.76     $ 0.70     $ 2.24     $ 2.74  
Adjusted net income* 28,261     27,904     23,514     90,824     95,672  
Adjusted diluted EPS* $ 0.82     $ 0.82     $ 0.69     $ 2.66     $ 2.78  
                   
Gross margin 9.4 %   9.4 %   8.9 %   8.9 %   9.0 %
Adjusted gross margin** 9.9 %   9.4 %   8.9 %   9.0 %   9.0 %
Operating margin 3.6 %   4.6 %   4.3 %   3.9 %   4.3 %
Adjusted operating margin* 5.1 %   4.9 %   4.3 %   4.5 %   4.4 %
                                       
ROIC* 13.8 %   13.0 %   14.0 %   13.8 %   14.0 %
Economic Return* 2.8 %   2.0 %   3.0 %   2.8 %   3.0 %
                   
*Refer to Non-GAAP Supplemental Information Tables 1 and 2 for a reconciliation to GAAP measures.
**Excludes $2.9 million of primarily inventory losses sustained from a typhoon that impacted the Company's manufacturing facilities in Xiamen, China in Q4F16 that were recorded in cost of sales in the accompanying Condensed Consolidated Statements of Operations.
 

Non-GAAP Financial Measures
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 net income, adjusted gross margin and adjusted operating margin, 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 that are not reflective of continuing operations.  For a full reconciliation of non-GAAP measures to comparable GAAP measures, please refer to Non-GAAP Supplemental Information and the attached Non-GAAP Supplemental Information Tables.

Market Sector and Segment Revenue Breakout
Plexus 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.  The Company measures operational performance and allocates resources on a geographic segment basis.  Top 10 customers comprised 59% of revenue during the fiscal fourth quarter and fiscal year 2016, down one percentage point from the fiscal third quarter 2016 and up three percentage points from the prior fiscal year.

       
Market Sectors ($ in millions)   Three Months Ended     Twelve Months Ended
  Oct 1, 2016
Q4F16
  Jul 2, 2016
Q3F16
  Oct 3, 2015
Q4F15
  Oct 1, 2016
F16
  Oct 3, 2015
F15
Healthcare/Life Sciences $ 192   29 %   $ 207   31 %   $ 183   27 %   $ 780   31 %   $ 750   28 %
Industrial/Commercial 231   35 %   202   30 %   201   30 %   774   30 %   685   26 %
Networking/Communications 128    20 %   156    23 %   179    27 %   597    23 %   845    32 %
Defense/Security/Aerospace 102   16 %   103   16 %   106   16 %   405   16 %   374   14 %
Total Revenue $ 653       $ 668       $ 669       $ 2,556       $ 2,654    
                                                 


       
Business Segments ($ in millions)   Three Months Ended     Twelve Months Ended
  Oct 1,   Oct 3,   Oct 1,   Oct 3,
    2016       2015       2016       2015  
Americas $ 334     $ 359     $ 1,329     $ 1,389  
Asia-Pacific   299       319       1,162       1,286  
Europe, Middle East, and Africa   44       43       170       140  
Elimination of inter-segment sales   (24 )     (52 )     (105 )     (161 )
Total Revenue $ 653     $ 669     $ 2,556     $ 2,654  
                               

Non-GAAP Supplemental Information
ROIC and Economic Return
ROIC for fiscal 2016 and the fiscal fourth quarter was 13.8%.  The Company defines ROIC as tax-effected annualized adjusted operating profit divided by average invested capital over a five-quarter period for the fourth quarter.  Invested capital is defined as equity plus debt, less cash and cash equivalents.  The Company’s fiscal 2016 weighted average cost of capital was 11.0%.  ROIC for fiscal 2016 and the fiscal fourth quarter less the Company’s weighted average cost of capital resulted in an economic return of 2.8%.

   
Cash Conversion Cycle Three Months Ended
  Oct 1, 2016
Q4F16
  Jul 2, 2016
Q3F16
  Oct 3, 2015
Q4F15
Days in Accounts Receivable   58       51       53  
Days in Inventory   87       87       85  
Days in Accounts Payable   (61 )         (62 )     (60 )
Days in Cash Deposits   (13 )     (13 )         (12 )    
Annualized Cash Cycle*   71       63       66  
 
*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.
 

Free Cash Flow Calculation
The Company defines free cash flow as cash flows provided by operations less capital expenditures.  For the three months ended October 1, 2016, cash flows provided by operations was $5.1 million, less capital expenditures of $7.3 million, resulting in negative free cash flow of $2.2 million.  For the twelve months ended October 1, 2016, cash flows provided by operations was $127.7 million, less capital expenditures of $31.1 million, resulting in free cash flow of $96.6 million.

Conference Call and Webcast Information

What: Plexus Fiscal Q4 2016 Earnings Conference Call and Webcast
When: Thursday, October 27, 2016 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, www.plexus.com or directly at: http://edge.media-server.com/m/p/jz5rx5gv/lan/en

Conference call at +1.800.708.4539 with passcode: 43416415
   
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: 43416415
   

About Plexus – The Product Realization Company

Plexus (www.plexus.com) delivers optimized Product Realization solutions through a unique Product Realization Value Stream service model.  This customer-focused services model seamlessly integrates innovative product conceptualization, design, commercialization, manufacturing, fulfillment and sustaining services to deliver comprehensive end-to-end solutions for customers in the America, European and Asia-Pacific regions.

Plexus is the industry leader in servicing mid-to-low volume, higher complexity customer programs characterized by unique flexibility, technology, quality and regulatory requirements.  Award-winning customer service is provided to over 140 branded product companies in the Healthcare/Life Sciences, Industrial/Commercial, Networking/Communications and Defense/Security/Aerospace market sectors.

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 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 as a result of a facility closure; 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; the potential effects of regional results on our taxes and ability to use deferred tax assets and net operating losses; risks related to information technology systems and data security; the effects of shortages and delays in obtaining components as a result of economic cycles or natural disasters; 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; potential economic weakness and other effects resulting from the June 2016 vote of the United Kingdom to exit 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; and other risks detailed in our Securities and Exchange Commission filings (particularly in "Risk Factors" in our fiscal 2015 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
  Oct 1,   Oct 3,   Oct 1,   Oct 3,
  2016     2015     2016     2015  
Net sales $ 653,064     $ 668,730     $ 2,556,004     $ 2,654,290  
Cost of sales 591,534       609,458     2,328,645       2,414,740  
Gross profit   61,530       59,272       227,359       239,550  
Selling and administrative expenses 36,074       30,701     120,886       122,423  
Restructuring and other charges 1,805         7,034     1,691  
Operating income   23,651       28,571       99,439       115,436  
Other income (expense):              
Interest expense (3,790 )     (3,524 )   (14,635 )     (13,964 )
Interest income 1,161       947     4,242       3,499  
Miscellaneous 799       775     (1,652 )     1,324  
Income before income taxes   21,821       26,769       87,394       106,295  
Income tax expense 2,728       2,904     10,967       11,963  
Net income $ 19,093     $ 23,865     $ 76,427     $ 94,332  
Earnings per share:              
Basic $ 0.57     $ 0.71     $ 2.29     $ 2.81  
Diluted $ 0.56     $ 0.70     $ 2.24     $ 2.74  
Weighted average shares outstanding:                
Basic   33,455       33,597       33,374       33,618  
Diluted 34,335     34,248     34,098       34,379  
                         


   
PLEXUS CORP. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(in thousands, except per share data)  
(unaudited)  
         
  Oct 1,   Oct 3,  
  2016   2015  
ASSETS        
Current assets:        
Cash and cash equivalents $ 432,964     $ 357,106    
Accounts receivable 416,888     384,680    
Inventories 564,131     569,371    
Prepaid expenses and other 19,364     22,882    
Total current assets   1,433,347       1,334,039    
Property, plant and equipment, net 291,225     317,351    
Deferred income taxes (1) 4,834     4,657    
Other (2) 36,413     35,713    
Total non-current assets   332,472       357,721    
  Total assets $ 1,765,819     $ 1,691,760    
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Current portion of long-term debt and capital lease obligations $ 78,507     $ 3,513    
Accounts payable 397,200     400,710    
Customer deposits 84,637     81,359    
Accrued salaries and wages 41,806     49,270    
Other accrued liabilities 48,286     44,446    
Total current liabilities   650,436       579,298    
Long-term debt and capital lease obligations, net of current portion (2) 184,002     258,293    
Other liabilities 14,584     11,897    
Total non-current liabilities   198,586       270,190    
  Total liabilities   849,022       849,488    
Shareholders’ equity:        
Common stock, $.01 par value, 200,000 shares authorized,        
 51,272 and 50,554 shares issued, respectively,        
 and 33,457 and 33,500 shares outstanding, respectively 513     506    
Additional paid-in-capital 530,647     497,488    
Common stock held in treasury, at cost, 17,815 and 17,054, respectively (539,968 )   (509,968 )  
Retained earnings 937,144     860,717    
Accumulated other comprehensive loss (11,539 )   (6,471 )  
Total shareholders’ equity   916,797       842,272    
  Total liabilities and shareholders’ equity $ 1,765,819     $ 1,691,760    
         
(1) As of October 3, 2015, current deferred income tax assets of $10.7 million and non-current deferred income tax liabilities of $9.7 million were reclassified to non-current deferred income tax assets due to the adoption of ASU 2015-17: Balance Sheet Classification of Deferred Taxes.
 
(2) As of October 3, 2015, $1.0 million of deferred financing costs were reclassified from other non-current assets to long-term debt and capital lease obligations, net of current portion due to the adoption of ASU 2015-03: Simplifying the Presentation of Debt Issuance Costs.
 
                 


PLEXUS CORP. AND SUBSIDIARIES  
NON-GAAP SUPPLEMENTAL INFORMATION Table 1  
(in thousands, except per share data)  
(unaudited)  
                     
  Three Months Ended   Twelve Months Ended  
  Oct 1,   Jul 2,   Oct 3,   Oct 1,   Oct 3,  
  2016   2016   2015   2016   2015  
Operating profit $ 23,651     $ 30,918     $ 28,571     $ 99,439     $ 115,436    
Operating margin 3.6 %   4.6 %   4.3 %   3.9 %   4.3 %  
                     
Non-GAAP adjustments:                    
Typhoon-related losses (1) 2,871             2,871        
Accelerated stock-based compensation expense (2) 5,210             5,210        
Restructuring and other charges* 1,805     1,805         7,034     1,691    
Adjusted operating profit $ 33,537     $ 32,723     $ 28,571     $ 114,554     $ 117,127    
Adjusted operating margin 5.1 %   4.9 %   4.3 %   4.5 %   4.4 %  
                     
Net income $ 19,093     $ 26,099     $ 23,865     $ 76,427     $ 94,332    
                     
Non-GAAP adjustments:                    
Typhoon-related losses (1) 2,871             2,871        
Related tax impact (718 )           (718 )      
Accelerated stock-based compensation expense (2) 5,210             5,210        
Restructuring and other charges* 1,805     1,805         7,034     1,691    
Discrete tax benefit, net         (351 )       (351 )  
Adjusted net income $ 28,261     $ 27,904     $ 23,514     $ 90,824     $ 95,672    
                     
Diluted earnings per share $ 0.56     $ 0.76     $ 0.70     $ 2.24     $ 2.74    
                     
Non-GAAP adjustments:                    
Typhoon-related losses (1) 0.08             0.08        
Related tax impact (0.02 )           (0.02 )      
Accelerated stock-based compensation expense (2) 0.15             0.15        
Restructuring and other charges* 0.05     0.06         0.21     0.05    
Discrete tax benefit, net         (0.01 )       (0.01 )  
Adjusted diluted earnings per share $ 0.82     $ 0.82     $ 0.69     $ 2.66     $ 2.78    
                     
*Summary of restructuring and other charges                    
Employee termination and severance costs $ 565     $ 1,641     $     $ 5,255     $ 144    
Other exit costs 460     164         999     1,547    
Loss on sale leaseback of building 780             780        
Total restructuring and other charges $ 1,805     $ 1,805     $     $ 7,034     $ 1,691    
                     
(1) During Q4F16 $2.9 million of charges were recorded in cost of sales in the accompanying Condensed Consolidated Statements of Operations; these charges resulted primarily from inventory losses sustained from a typhoon that impacted the Company's manufacturing facilities in Xiamen, China.
 
(2) During Q4F16 $5.2 million of accelerated stock-based compensation expense was recorded in selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations pursuant to the previously announced retirement agreement with the Company's former Chief Executive Officer.
 
                                         


PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 2
 (in thousands)
(unaudited)
           
ROIC and Economic Return Calculations Twelve Months Ended   Nine Months Ended   Twelve Months Ended
  Oct 1,   Jul 2,   Oct 3,
  2016   2016   2015
Operating profit   $ 99,439       $ 75,788       $ 115,436  
Typhoon-related losses + 2,871     +     +  
Accelerated stock-based compensation expense   + 5,210     +     +  
Restructuring and other charges + 7,034     + 5,229     + 1,691  
Adjusted operating profit   $ 114,554       $ 81,017       $ 117,127  
        ÷ 3        
          $ 27,006        
        x 4        
Adjusted annualized operating profit   $ 114,554       $ 108,024       $ 117,127  
Tax rate x 11 %   x 11 %   x 11 %
Tax impact   12,601       11,883       12,884  
Adjusted operating profit (tax effected)   $ 101,953       $ 96,141       $ 104,243  
                 
Average invested capital ÷ $ 739,986     ÷ $ 738,397     ÷ $ 745,611  
                 
ROIC   13.8 %     13.0 %     14.0 %
Weighted average cost of capital - 11.0 %   - 11.0 %   - 11.0 %
Economic return   2.8 %     2.0 %     3.0 %


  Three Months Ended
Average Invested Capital Oct 1,   Jul 2,   Apr 2,   Jan 2,   Oct 3,
Calculations   2016       2016       2016       2016       2015  
Equity $ 916,797     $ 895,175     $ 871,111     $ 850,794     $ 842,272  
Plus:                  
Debt - current   78,507       78,279       2,300       2,864       3,513  
Debt - long-term   184,002       184,479       259,565       259,289       259,257  
Less:                  
Cash and cash equivalents     (432,964 )     (433,679 )     (409,796 )     (354,728 )     (357,106 )
  $ 746,342     $ 724,254     $ 723,180     $ 758,219     $ 747,936  


  Three Months Ended
Average Invested Capital Jul 4,   Apr 4,   Jan 3,   Sept 27,
Calculations   2015       2015       2015       2014  
Equity $ 835,063     $ 808,468     $ 792,298     $ 781,133  
Plus:              
Debt - current   4,281       4,774       4,793       4,368  
Debt - long-term   259,284       260,025       260,990       262,046  
Less:              
Cash and cash equivalents     (354,830 )     (356,296 )     (239,685 )     (346,591 )
  $ 743,798     $ 716,971     $ 818,396     $ 700,956  

 

Investor and Media Contact
Susan Hanson
+1.920.751.5491
susan.hanson@plexus.com

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