Plexus (PLXS) Q4 2015 earnings summary

Executive summary

• FY15 net sales rose 11.6% to $2.654B, led by growth across all market sectors; softening in networking/communications and industrial/commercial emerged in Q4 and was expected to continue through H1 FY16.

• Net income increased 8.2% to $94.3M and diluted EPS rose to $2.74; gross margin declined to 9.0% from 9.5% as lower parts and labor contribution margins and higher fixed costs weighed on results.

Financial highlights

• Revenue increased $276.0M YoY; gross profit rose 6.2% to $239.6M, while operating income grew to $115.4M and operating margin improved to 4.3% from 4.2%.

• Reported net income was $94.3M; Adjusted net income excluding the $17.5M valuation-allowance charge was $111.8M. FY15 diluted EPS was $2.74 versus $2.52 in FY14.

• Operating income included $1.7M of restructuring and impairment charges in FY15 versus $11.3M in FY14; FY15 had 53 weeks versus 52 weeks in FY14.

• Operating cash flow was $76.6M, down from $88.4M; free cash flow increased to $41.5M from $23.1M, primarily on lower capital expenditures.

Outlook and guidance

• Softening in networking/communications and industrial/commercial markets was expected to continue through H1 FY16.

• FY16 effective tax rate expected at 12.0%–14.0%; estimated capital expenditures of $35M–$40M.

• Fremont closure was expected to generate $3M–$5M of restructuring charges by end-Q3 FY16; customer programs were expected to transfer to other facilities, with consolidation also targeted for completion by then.

• Financial model targets a 5.0% operating margin and ROIC 500 bps above WACC; targeted organic revenue growth rate is 12.0%.